“Real wealth is ideas plus energy.” - Richard Buckminster (1895-1983)
At this junction, the broad index points to a simply stronger finish to an already positive 2010 performance. The stock and commodity markets were in cooling off mode heading into last week. Mostly, the November downtrend can be classified as an inevitable decline following the autumn rally. However, risk appetite is slowly coming back as the S&P 500 Index rallied nearly 3% for the week, commodities are resurging, and volatility estimates are more tamed. Now, the labor numbers might fail to tell a similar optimistic story, but as usual, this may not impact the forward looking markets.
Reading overall sentiment is tricky since, for the most part, key asset classes, such as corporate bonds, emerging market stocks, and commodity related investments, project a healthy appetite in the mindset of investors. Meanwhile, we are in a period where investors are presented with various niche areas and several financial vehicles. An example of usage of various instruments is demonstrated here: “The value of currency derivatives worldwide doubled in the past three years to $3.2 trillion amid the 'turbulence' of the credit crisis” (Bloomberg, November 30, 2010). This potentially exemplifies further investor usage of various tools, while showcasing enhanced demand for hedging. Thus, reading fear is confusing when markets erupt and psychology leans toward caution.
Beyond the Worries
As daring investors look to either take profits or redeploy capital into new ideas, the casual observer is left deciphering few questions. Only few days ago, the European credit problems escalated from headline chatter into sensitive market responses. In other words, there is no shortage of worrisome issues, such as bubble-like patterns in emerging markets and the fragile status of certain European economies. Even heading into year-end, one can assume that credit and economic concerns have not fully vanished. This, in turn, suggests that risk takers are still offered some reward.
Basically, from money managers’ views, as long as consensus is not too bullish, the work is in finding attractive ideas while grasping the associated, less known details. Similarly, other big picture unknowns, such as taxation and regulatory impact, are bound to entice investors to speculate in upcoming weeks. On the other hand, finding themes less affected by government decisions are worth identifying. Those ideas might be limited, given significant policymaker influence in this environment. However, the key message here suggests that the unsettled market opens up opportunities across various timeframes and caters to an assortment of risk tolerances.
Specific Ideas
There are opportunities in momentum driven areas that have excelled in niche areas. For instance, Interactive Intelligence (ININ) presents an attractive story, and the shares are even more appealing on pending pullbacks. The company is in the software business, and their service arena ranges from voice-over Internet protocol to workflow management. In terms of investors looking for innovative themes into next year, ININ is worth a look as it provides exposure to phone center automation and enterprise IP telephony. In other words, the line of business fits into global themes of interest to expanding businesses. Importantly, any sell-off in the near-term can be viewed as a purchasing opportunity for longer-term investors.
Companhia de Saneamento Basico do Estado de Sao Paulo (SBS), a water and sewage service provider, is one way to bet on expanding Brazilian infrastructure. SBS maintains its uptrend, and as shares consolidate between $46-50, there are opportunities for timely buy points. In addition, those seeking long-term investments might find the utility sector attractive, and few find this stock appealing ahead of the World Cup in 2014.
Article Quotes
“Consider the measurement of unemployment. The unemployment rate has currently settled in at roughly 10 % for the past three years, yet the employment to population ratio is at its lowest level in thirty years and has declined from 64% to 58%. So what is more important? The fact that 10% of a smaller population is not working? Or that the employment rate has dropped so precipitously? Can the 10% number, alone, allow anyone to make any conclusions about anything?.... Housing represents roughly 30% of the "core" Consumer Price Index. However, its computation is based not upon actual rents, but on the statistical modeling of "rent equivalents." This device has failed to capture the recent transformation of housing from an item of consumption to a speculative asset.” (Reuven Brenner, Forbes, December 1, 2010)
“Both the S&P Midcap 400 and Smallcap 600 made new bull market highs this week, while the largecap S&P 500 remains below its November closing high. Smallcaps and midcaps have both begun to distance themselves from their largecap brethren in terms of performance as the end of the year approaches. …the Midcap 400 is up 21.56% so far in 2010, while the Smallcap 600 is up slightly less at 20.19%. The S&P 500 is up just 9.34%. As shown in the two smaller charts below the big chart, the spreads between the YTD performance of the Smallcap 600 and Midcap 400 versus the S&P 500 are at their highest levels of the year.” (Bespoke Investment Group, December 3, 2010)
Levels
S&P 500 Index [1224.71] – Explosive recovery contributes to a move that’s almost near yearly highs that were reached in early November. Mostly a reestablishment of positive trend appears to resurface to close out the few remaining trading days.
Crude [$89.10] – A breakout above $85, after several weeks of sluggish back and forth trading— an early resurgence that can attract long-term observers. However, some will note that nearly a 6%, 1-week move might require a breather.
Gold [$1403.50] – A short-lived pause, as re-acceleration is underway. The momentum continues to build and feeds into the ongoing trend, inviting new investors to reconsider.
DXY – US Dollar Index [79.37] – As expected, increase in commodity prices lead to an inverse response for the US Dollar. The index is struggling to hold above $80, which serves as a multi-year barometer on near-term sentiment.
US 10 Year Treasury Yields [3.00%] – The recent behavior has yields revising the 3% level for the first time since mid-summer—a sign of normalization after a period breakdown.
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, December 06, 2010
Monday, November 29, 2010
Market Outlook | November 29, 2010
“Weary the path that does not challenge. Doubt is an incentive to truth and patient inquiry leadeth the way.” - Hosea Ballou (1796 - 1861)
When investors reflect, they quickly notice that European worries triggered sell-offs in the spring. Now, the uptrend is being interrupted, and further selling is highly tied to default worries—a puzzle that’s lingering since 2008 and a clear cut resolution that’s far from reality. Clearly, these factors are well documented, and the economic construction of Europe is being questioned.
The stock market peaked on November 5, 2010, a little after the US election and the announcement of quantitative easing plans. Interestingly, since then, the dollar has climbed back significantly, despite the common think. Similarly, rates have recovered this month, which raise a curious question of legitimate trend reversal versus a temporary change in behavior. Attentive watching can produce some clues until the trend shift is fully visible.
These days, the momentum driven plays are under question as the upside run in market leaders, such as commodity related equities, paused. As we near year-end, the recent breather is a casual reminder of the reality of a new cycle. Financial services continue to suffer from headlines as some money managers’ reputations are at risk. Similarly, new regulatory policies are addressing details that impact investment management. Even in skeptical periods, the market still rewards analysts that find specific ideas, while market timing requires understanding of various index products and increasing sensitive news beyond the stock of interest. Combining these factors, the competition against traditional assets (stocks and bonds), is growing as some investors are frustrated by the lack of promised returns of the past decade. Meanwhile, the search for higher yields and increasing patterns of risk aversion persist in the minds of decision makers. Thus, an era of fragmented views among consensus and trust has yet recovered to conjure innovation and growth at a faster pace.
Grasping investor mindset is as challenging as predicting regulatory and policy makers’ outcome. Domestically, the tax rules are up for major changes this December. Speculators must add taxes to the mix of big picture themes that require time for higher conviction bets. The pending tax outcome can impact year-end trading as high net worth clients examine their moves. In turn, this is bound to reflect on flow patterns of liquid markets. In addition, new tax laws can give birth to new products and new sales pitches among money managers. In any case, this is another illustration of a new cycle that’s bringing new challenges and a reminder to adjust to a new playing field.
Article Quotes
"Still, if the recent turbulence has proven anything, it's that "shock and awe" measures are unlikely to appease investors for long, nor change their view that the bloc is fundamentally flawed because of a steep competitiveness gap that only a closer fiscal union may be able to solve. Going down this path is a non-starter for Germany, which has insisted instead that peripheral euro countries push through deflationary wage cuts and painful structural reforms to boost productivity, in line with its own successful economic model.” (Reuters, November 25, 2010)
“What then is productive debt? This is a question raised by a thought-provoking paper by Oxford University’s Dieter Helm, an expert in utility regulation. The kernel is the idea that all societies possess infrastructure assets, which should be thought of as systems. Transport, energy and water systems are examples. We also have education, health, market, financial, judicial, defence and political systems. The more complex the civilisation, the more complex are its systems.The creation and development of these assets usually involves the state, as provider, subsidiser or regulator. The reason is that they have “public good” characteristics. Thus, they would tend to be underprovided by competitive markets.” (Financial Times, November 25, 2010)
Levels
S&P 500 Index [1189.40] – Starting to trade in a near-term range between 1200 and 1180. Chartists are noticing the peak at 1200 of early spring and pondering the impact of the recent top in early November.
Crude [$83.76] – Buyers and sellers continue to wrestle between the $80-85 ranges. No major shift in recent weeks as a sideway pattern tells majority of the commodity’s story.
Gold [$1355] – Shows early and visible signs of short-term weakness around 1400. Most of this month witnessed a decline that might set up for an intermediate term consolidation.
DXY – US Dollar Index [80.35] – Since election lows, the US Dollar Index has gained 6.2%. This short term recovery is merely a digging out process from annual lows.
US 10 Year Treasury Yields [2.86%] – The past four months have demonstrated a consolidating process.
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.
When investors reflect, they quickly notice that European worries triggered sell-offs in the spring. Now, the uptrend is being interrupted, and further selling is highly tied to default worries—a puzzle that’s lingering since 2008 and a clear cut resolution that’s far from reality. Clearly, these factors are well documented, and the economic construction of Europe is being questioned.
The stock market peaked on November 5, 2010, a little after the US election and the announcement of quantitative easing plans. Interestingly, since then, the dollar has climbed back significantly, despite the common think. Similarly, rates have recovered this month, which raise a curious question of legitimate trend reversal versus a temporary change in behavior. Attentive watching can produce some clues until the trend shift is fully visible.
These days, the momentum driven plays are under question as the upside run in market leaders, such as commodity related equities, paused. As we near year-end, the recent breather is a casual reminder of the reality of a new cycle. Financial services continue to suffer from headlines as some money managers’ reputations are at risk. Similarly, new regulatory policies are addressing details that impact investment management. Even in skeptical periods, the market still rewards analysts that find specific ideas, while market timing requires understanding of various index products and increasing sensitive news beyond the stock of interest. Combining these factors, the competition against traditional assets (stocks and bonds), is growing as some investors are frustrated by the lack of promised returns of the past decade. Meanwhile, the search for higher yields and increasing patterns of risk aversion persist in the minds of decision makers. Thus, an era of fragmented views among consensus and trust has yet recovered to conjure innovation and growth at a faster pace.
Grasping investor mindset is as challenging as predicting regulatory and policy makers’ outcome. Domestically, the tax rules are up for major changes this December. Speculators must add taxes to the mix of big picture themes that require time for higher conviction bets. The pending tax outcome can impact year-end trading as high net worth clients examine their moves. In turn, this is bound to reflect on flow patterns of liquid markets. In addition, new tax laws can give birth to new products and new sales pitches among money managers. In any case, this is another illustration of a new cycle that’s bringing new challenges and a reminder to adjust to a new playing field.
Article Quotes
"Still, if the recent turbulence has proven anything, it's that "shock and awe" measures are unlikely to appease investors for long, nor change their view that the bloc is fundamentally flawed because of a steep competitiveness gap that only a closer fiscal union may be able to solve. Going down this path is a non-starter for Germany, which has insisted instead that peripheral euro countries push through deflationary wage cuts and painful structural reforms to boost productivity, in line with its own successful economic model.” (Reuters, November 25, 2010)
“What then is productive debt? This is a question raised by a thought-provoking paper by Oxford University’s Dieter Helm, an expert in utility regulation. The kernel is the idea that all societies possess infrastructure assets, which should be thought of as systems. Transport, energy and water systems are examples. We also have education, health, market, financial, judicial, defence and political systems. The more complex the civilisation, the more complex are its systems.The creation and development of these assets usually involves the state, as provider, subsidiser or regulator. The reason is that they have “public good” characteristics. Thus, they would tend to be underprovided by competitive markets.” (Financial Times, November 25, 2010)
Levels
S&P 500 Index [1189.40] – Starting to trade in a near-term range between 1200 and 1180. Chartists are noticing the peak at 1200 of early spring and pondering the impact of the recent top in early November.
Crude [$83.76] – Buyers and sellers continue to wrestle between the $80-85 ranges. No major shift in recent weeks as a sideway pattern tells majority of the commodity’s story.
Gold [$1355] – Shows early and visible signs of short-term weakness around 1400. Most of this month witnessed a decline that might set up for an intermediate term consolidation.
DXY – US Dollar Index [80.35] – Since election lows, the US Dollar Index has gained 6.2%. This short term recovery is merely a digging out process from annual lows.
US 10 Year Treasury Yields [2.86%] – The past four months have demonstrated a consolidating process.
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.
Sunday, November 21, 2010
Market Outlook | November 22, 2010
“Man cannot discover new oceans unless he has the courage to lose sight of the shore.” - Andre Gide
As the holiday season begins to slowly resurface, the minds of investors will be occupied on looking ahead to the first quarter of 2011. It seems appropriate to revisit future outlook as analysts gather to make estimates. Importantly, it is a good time to map out possible surprises as well. As we learn, almost every year, the unfathomable elements, versus consensus thoughts, are worth examining. For instance, inflation expectations appear very high, and meeting those expectations is rather questionable. Similarly, the enthusiasm for existing themes can begin to dwindle, such as commodity run, strong dollar, and lower interest rates. Of course, these are not only annual themes but have been visible for multi-year trends offering various waves.
Meanwhile, investor excitement for new ideas is quietly resurfacing, even though, at times, it is not visible to the broader audience. Despite the mixed market read, it is hard for one to argue that global markets have lacked optimism, especially in the last few months. In fact, the second half for savvy investors has presented opportunities. So far this year, the S&P 500 Index is up 7.6% and Russell Small Cap Index has gained over 15%. Simple scorekeeping is not enough to cease skepticism surrounding the Federal Reserve decisions and restoration plans. To sum up, in certain periods, the market performance is not to be confused with economic performance or other rhetoric.
Two years after the major crisis, the adjustment to a new era continues. In the United States, taxation impact, new policies, and persisting real estate worries can shape the overall trend. Interestingly, within this new cycle, periods of volatility are poised to be triggered by reactions related to central bank policy. In recent weeks, tension among economic leaders was displayed, which paints a prelude to testy global policies. This mainly relates to Europe’s economic and political troubles that require some time to shake off. Meanwhile, run up in asset prices and heating economy in emerging markets is bound to reach unsustainable levels. Like any topping process, identifying all risks is hard to quantify in advance. Thus, managing instincts and emotions will be vital for those deeply invested. In other words, money managers cannot justify selling due to an “unknown”, so at this point, observing is the practical, and occasionally painful, option.
Selective Approach
In terms of constructing a portfolio, a selective approach seems fruitful as there is a discrepancy between the broad index and specific ideas. The momentum of chasing commodities related investments has outpaced other areas. However, those owners of commodity related assets will have to look six months ahead. Therefore, innovative groups, such as healthcare and technology, present specific ideas. This serves as an alternative to pricey, valued, natural resources, given higher performance chasing by global investors.
In terms of healthcare, there is a trend in recent years of a growing number of hip and joint replacements. Specifically, Smith & Nephew (SNN) continues to see positive global growth and offers an attractive entry point. The company benefits from its advanced wound treatment as well as its core joint replacement business. In addition, a recovering economy can even tack on further gains to Smith & Nephew’s business model.
On the other hand, several technology stocks have lead this market recovery. Meanwhile, the intriguing area of personalized robots takes innovation a notch higher while presenting a cutting edge idea. Currently, the robot usage is applied for military use along with expanding products for consumers. One way to gain exposure to this theme is by owning shares of IRBT (iRobot), a publicly traded company that is showcasing strength and momentum. Importantly, the company is equipped for leadership in this niche sector.
Article & Research Quotes
“The average S&P 500 stock rose 18.43% from the start of September through November 5th. Since November 5th, the average stock has declined 2.75%. We broke the index into deciles (10 groups of 50 stocks each) based on performance during the rally and calculated the average performance of stocks in each decile since November 5th to see how the rally winners and losers have been doing during the recent pullback. It's almost always the case that the stocks that go up the most during rallies also pull back the most when the market corrects. Interestingly, this hasn't been the case during the current pullback. …The three deciles of stocks that did the worst during the rally have also done the worst since 11/5. Investors in the big winners over the past couple of months haven't really been hurt over the past two weeks. The losers, on the other hand, have remained losers.“ (Bespoke Investments, November 19, 2010)
“Greece is now under an EU protectorate, or the “Memorandum” as they call it. This has prompted pin-prick terrorist attacks against anybody associated with EU rule. Ireland and Portugal are further behind on this road to serfdom, but they are already facing policy dictates from Brussels, but will soon be under formal protectorates as well in any case. Spain has more or less been forced to cut public wages by 5pc to comply with EU demands made in May. All are having to knuckle down to Europe’s agenda of austerity, without the offsetting relief of devaluation and looser monetary policy.” (Telegraph, November 16, 2010)
Levels
S&P 500 Index [1199.73] – Basically, no major change since last week’s close. Trading pattern near 1200 will be watched and closely tracked for some additional hints.
Crude [$81.51] – Once again, there is less willingness among buyers around $85. A retest of $80 seems like a strong, short-term possibility.
Gold [$1342.50] – Staying above 1400 presents a near-term challenge after an explosive run, however, a longer-term trend.
DXY – US Dollar Index [78.50] – Stabilizing from annual lows driven by the recent run. The index is still significantly down from the summer as the downtrend remains in place.
US 10 Year Treasury Yields [2.87%] – Following a bottom at 2.40%, yields are noticeably rising this quarter. The next key range stands around 3%, which has not been seen since midyear.
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.
As the holiday season begins to slowly resurface, the minds of investors will be occupied on looking ahead to the first quarter of 2011. It seems appropriate to revisit future outlook as analysts gather to make estimates. Importantly, it is a good time to map out possible surprises as well. As we learn, almost every year, the unfathomable elements, versus consensus thoughts, are worth examining. For instance, inflation expectations appear very high, and meeting those expectations is rather questionable. Similarly, the enthusiasm for existing themes can begin to dwindle, such as commodity run, strong dollar, and lower interest rates. Of course, these are not only annual themes but have been visible for multi-year trends offering various waves.
Meanwhile, investor excitement for new ideas is quietly resurfacing, even though, at times, it is not visible to the broader audience. Despite the mixed market read, it is hard for one to argue that global markets have lacked optimism, especially in the last few months. In fact, the second half for savvy investors has presented opportunities. So far this year, the S&P 500 Index is up 7.6% and Russell Small Cap Index has gained over 15%. Simple scorekeeping is not enough to cease skepticism surrounding the Federal Reserve decisions and restoration plans. To sum up, in certain periods, the market performance is not to be confused with economic performance or other rhetoric.
Two years after the major crisis, the adjustment to a new era continues. In the United States, taxation impact, new policies, and persisting real estate worries can shape the overall trend. Interestingly, within this new cycle, periods of volatility are poised to be triggered by reactions related to central bank policy. In recent weeks, tension among economic leaders was displayed, which paints a prelude to testy global policies. This mainly relates to Europe’s economic and political troubles that require some time to shake off. Meanwhile, run up in asset prices and heating economy in emerging markets is bound to reach unsustainable levels. Like any topping process, identifying all risks is hard to quantify in advance. Thus, managing instincts and emotions will be vital for those deeply invested. In other words, money managers cannot justify selling due to an “unknown”, so at this point, observing is the practical, and occasionally painful, option.
Selective Approach
In terms of constructing a portfolio, a selective approach seems fruitful as there is a discrepancy between the broad index and specific ideas. The momentum of chasing commodities related investments has outpaced other areas. However, those owners of commodity related assets will have to look six months ahead. Therefore, innovative groups, such as healthcare and technology, present specific ideas. This serves as an alternative to pricey, valued, natural resources, given higher performance chasing by global investors.
In terms of healthcare, there is a trend in recent years of a growing number of hip and joint replacements. Specifically, Smith & Nephew (SNN) continues to see positive global growth and offers an attractive entry point. The company benefits from its advanced wound treatment as well as its core joint replacement business. In addition, a recovering economy can even tack on further gains to Smith & Nephew’s business model.
On the other hand, several technology stocks have lead this market recovery. Meanwhile, the intriguing area of personalized robots takes innovation a notch higher while presenting a cutting edge idea. Currently, the robot usage is applied for military use along with expanding products for consumers. One way to gain exposure to this theme is by owning shares of IRBT (iRobot), a publicly traded company that is showcasing strength and momentum. Importantly, the company is equipped for leadership in this niche sector.
Article & Research Quotes
“The average S&P 500 stock rose 18.43% from the start of September through November 5th. Since November 5th, the average stock has declined 2.75%. We broke the index into deciles (10 groups of 50 stocks each) based on performance during the rally and calculated the average performance of stocks in each decile since November 5th to see how the rally winners and losers have been doing during the recent pullback. It's almost always the case that the stocks that go up the most during rallies also pull back the most when the market corrects. Interestingly, this hasn't been the case during the current pullback. …The three deciles of stocks that did the worst during the rally have also done the worst since 11/5. Investors in the big winners over the past couple of months haven't really been hurt over the past two weeks. The losers, on the other hand, have remained losers.“ (Bespoke Investments, November 19, 2010)
“Greece is now under an EU protectorate, or the “Memorandum” as they call it. This has prompted pin-prick terrorist attacks against anybody associated with EU rule. Ireland and Portugal are further behind on this road to serfdom, but they are already facing policy dictates from Brussels, but will soon be under formal protectorates as well in any case. Spain has more or less been forced to cut public wages by 5pc to comply with EU demands made in May. All are having to knuckle down to Europe’s agenda of austerity, without the offsetting relief of devaluation and looser monetary policy.” (Telegraph, November 16, 2010)
Levels
S&P 500 Index [1199.73] – Basically, no major change since last week’s close. Trading pattern near 1200 will be watched and closely tracked for some additional hints.
Crude [$81.51] – Once again, there is less willingness among buyers around $85. A retest of $80 seems like a strong, short-term possibility.
Gold [$1342.50] – Staying above 1400 presents a near-term challenge after an explosive run, however, a longer-term trend.
DXY – US Dollar Index [78.50] – Stabilizing from annual lows driven by the recent run. The index is still significantly down from the summer as the downtrend remains in place.
US 10 Year Treasury Yields [2.87%] – Following a bottom at 2.40%, yields are noticeably rising this quarter. The next key range stands around 3%, which has not been seen since midyear.
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, November 15, 2010
Market Outlook |November 15, 2010
“Certainly, there are good and bad times, but our mood changes more often than our fortune.” - Jules Renard
A Perspective
It feels like 2007 all over again, when tracking price appreciation in stocks and commodities. Or maybe it feels like April 2010, in a period when the S&P 500 Index closed near 1200 and Crude was priced at $85. In both cases, that marked a peak for key asset classes. Interestingly, both macro indicators are near those spring 2010 ranges as well. Perhaps, that subtly suggests a set up that favors further declines. The slow and steady stock market appreciation appears murky, especially when blending discussion of quantitative easing. In other words, the comfort level among investors in the ability to grasp Federal Reserve actions is not quite clear and bound to create political chatter and further debates
Short-term Landscape
A much needed breather in broad stock market indexes took place last week as selling dominated global investor mindset. It did not take too long for the markets to cool off from recent optimism that was driven by new stimulus policy. Some odd-makers and chart pattern observers were hinting the strong possibility of minor retracements. Now, the question is how one mood swing can contribute to greater uncertainty and spark another down trending momentum. It is vital to note that the European credit worries contributed greatly as a catalyst to late April sell-offs. In digesting the similarities, one can observe that the worries in European country economic stability are resurfacing as well. In addition, the real estate bubble in Australia and overheated emerging markets are on the radar of decision makers in money management. Yet, the current declines, along with reiteration of previously known facts, might require more evidence to classify as new information. Therefore, daring investors will be challenged to avoid the noise of headlines.
A Closer Look
As moods find a way to shift quickly, the Dollar and Interest Rates are showcasing a noteworthy response in the last few weeks. Both indicators have remained in a downside, multi-year cycle. That said, it is quite intriguing that the Dollar and US 10 Year Treasury Yields have risen in the past two weeks, despite the general sentiment and expectations. Usually, at year-end, some trends go slightly unnoticed given minor hints and movements. However, the sustainability of a recovery in rates and appreciating Dollar should not be underestimated. Similarly, the multi-month trend of tamed volatility (as measured by VIX index) is at an early stage of showcasing freight, which showcases a potentially chaotic response. Market historians remind us that sentiment changes quickly, and those looking for attractive opportunities might have to react as fast as those looking to exit. Therefore, this week can provide further clues of key trends for longer-term and sideline observers.
Article Quotes:
“Junk yields are at their lowest levels since October 2007. And the leveraged buyout market is back to paying 2006 levels of EBITDA (earnings before interest, taxes, depreciation and amortization) of 6 to 8.5 times, with the recent announcement of Carlyle Group’s reported 11 times EBITDA purchase of Syniverse Holdings echoing the peak of the precrash craze. As you know, buyout people do not typically acquire companies with a plan to expand the workforce, but instead with an eye to tighten operations, drive productivity, rejigger balance sheets, and provide an attractive payback, usually in shorter time than under normal corporate horizons. And the corporations I talk to that are eyeing possible acquisitions with their surplus cash and ready access to the credit markets are not given to thinking of strategic acquisitions as a way to expand payrolls.” (Speech by Richard W. Fisher, Federal Reserve of Dallas, November 8, 2010)
“The suggestion that speculators deliberately manipulate markets to earn profits through bubbles and busts simply does not hold water. The explanation for the sudden spikes in the prices of many commodities in recent years lies in nothing more sinister than the laws of supply and demand. A ravenous China, underinvestment in mining and agriculture, tight markets and unexpected disruptions to production are usually to blame for rapid price movements. When supply is tight, a small increase in demand can have a disproportionately large effect on price. Even if speculators do sometimes push prices out of kilter the fundamentals soon regain the upper hand.” (The Economist, November 11, 2010)
Levels:
S&P 500 Index [1199.29] – Retracing from last week’s highs of 1227.08, after being stretched in this recent rally. The 1200 mark is vital, since that is near the level where the market peaked and declined in April 2010.
Crude [$84.88] – Prices have struggled to stay above $85 for a significant period. A step back reminds us that Crude prices are in a wide trading range between $75 and $85.
Gold [$1388.50] – The commodity is up over 20% since bottoming on July 28, 2010 and stands 15% higher than its 200-day moving average. In the near-term, observers will be watching any pending weakness in which investors might consider buying at 1350.
DXY – US Dollar Index [76.54] – It remains in a consolidation phase and slightly above annual lows. Interestingly, the index is up 3.77% in the past seven trading days.
US 10 Year Treasury Yields [2.78%] – There are early signs of rising rates, especially in the past two weeks. The surge closer to 3% can spark psychological and practical responses from global managers.
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.
A Perspective
It feels like 2007 all over again, when tracking price appreciation in stocks and commodities. Or maybe it feels like April 2010, in a period when the S&P 500 Index closed near 1200 and Crude was priced at $85. In both cases, that marked a peak for key asset classes. Interestingly, both macro indicators are near those spring 2010 ranges as well. Perhaps, that subtly suggests a set up that favors further declines. The slow and steady stock market appreciation appears murky, especially when blending discussion of quantitative easing. In other words, the comfort level among investors in the ability to grasp Federal Reserve actions is not quite clear and bound to create political chatter and further debates
Short-term Landscape
A much needed breather in broad stock market indexes took place last week as selling dominated global investor mindset. It did not take too long for the markets to cool off from recent optimism that was driven by new stimulus policy. Some odd-makers and chart pattern observers were hinting the strong possibility of minor retracements. Now, the question is how one mood swing can contribute to greater uncertainty and spark another down trending momentum. It is vital to note that the European credit worries contributed greatly as a catalyst to late April sell-offs. In digesting the similarities, one can observe that the worries in European country economic stability are resurfacing as well. In addition, the real estate bubble in Australia and overheated emerging markets are on the radar of decision makers in money management. Yet, the current declines, along with reiteration of previously known facts, might require more evidence to classify as new information. Therefore, daring investors will be challenged to avoid the noise of headlines.
A Closer Look
As moods find a way to shift quickly, the Dollar and Interest Rates are showcasing a noteworthy response in the last few weeks. Both indicators have remained in a downside, multi-year cycle. That said, it is quite intriguing that the Dollar and US 10 Year Treasury Yields have risen in the past two weeks, despite the general sentiment and expectations. Usually, at year-end, some trends go slightly unnoticed given minor hints and movements. However, the sustainability of a recovery in rates and appreciating Dollar should not be underestimated. Similarly, the multi-month trend of tamed volatility (as measured by VIX index) is at an early stage of showcasing freight, which showcases a potentially chaotic response. Market historians remind us that sentiment changes quickly, and those looking for attractive opportunities might have to react as fast as those looking to exit. Therefore, this week can provide further clues of key trends for longer-term and sideline observers.
Article Quotes:
“Junk yields are at their lowest levels since October 2007. And the leveraged buyout market is back to paying 2006 levels of EBITDA (earnings before interest, taxes, depreciation and amortization) of 6 to 8.5 times, with the recent announcement of Carlyle Group’s reported 11 times EBITDA purchase of Syniverse Holdings echoing the peak of the precrash craze. As you know, buyout people do not typically acquire companies with a plan to expand the workforce, but instead with an eye to tighten operations, drive productivity, rejigger balance sheets, and provide an attractive payback, usually in shorter time than under normal corporate horizons. And the corporations I talk to that are eyeing possible acquisitions with their surplus cash and ready access to the credit markets are not given to thinking of strategic acquisitions as a way to expand payrolls.” (Speech by Richard W. Fisher, Federal Reserve of Dallas, November 8, 2010)
“The suggestion that speculators deliberately manipulate markets to earn profits through bubbles and busts simply does not hold water. The explanation for the sudden spikes in the prices of many commodities in recent years lies in nothing more sinister than the laws of supply and demand. A ravenous China, underinvestment in mining and agriculture, tight markets and unexpected disruptions to production are usually to blame for rapid price movements. When supply is tight, a small increase in demand can have a disproportionately large effect on price. Even if speculators do sometimes push prices out of kilter the fundamentals soon regain the upper hand.” (The Economist, November 11, 2010)
Levels:
S&P 500 Index [1199.29] – Retracing from last week’s highs of 1227.08, after being stretched in this recent rally. The 1200 mark is vital, since that is near the level where the market peaked and declined in April 2010.
Crude [$84.88] – Prices have struggled to stay above $85 for a significant period. A step back reminds us that Crude prices are in a wide trading range between $75 and $85.
Gold [$1388.50] – The commodity is up over 20% since bottoming on July 28, 2010 and stands 15% higher than its 200-day moving average. In the near-term, observers will be watching any pending weakness in which investors might consider buying at 1350.
DXY – US Dollar Index [76.54] – It remains in a consolidation phase and slightly above annual lows. Interestingly, the index is up 3.77% in the past seven trading days.
US 10 Year Treasury Yields [2.78%] – There are early signs of rising rates, especially in the past two weeks. The surge closer to 3% can spark psychological and practical responses from global managers.
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, November 08, 2010
Market Outlook | November 8, 2010
“The universe is change; our life is what our thoughts make it.” - Marcus Aurelius Antoninus, Meditations
As expected, election results reflected a message of change, and that provided a further jolt to the existing market uptrend. Now that we’ve seen this commonly reoccurring pattern of response to the shift in power, we can only conclude that one anticipated event is behind us. In fact, let’s not forget that a seasonal change from summer to fall somewhat sparked and revived the current run as well. So far, this year, the Nasdaq 100 and Russell Small Cap index are up nearly 18%. Interestingly, asset classes are rising together and, in some cases, leading to new yearly highs. For some observers, the synchronized price appreciation echoes a minor version of summer of 2007. However, the 2008 credit downturn is still lingering in the minds of investors. In other words, the crisis served as a reality check, while opening up a can of worms on worrisome issues. Sequentially, the post crisis response led to the following near-term trends that set the general tone:
• Overly aggressive regulatory discussions, mixed with political posturing
• Fear of rising interest rates
• Consensus agreement on higher volatility
• Lower willingness for capital commitment by larger companies
At this point, some of these responses can be labeled as an overreaction, but that would be too early to call. In addition, the consensus bet of rising rates and volatility proved to be grossly incorrect, despite the highly expressive statements by pundits and headline generators. In weeks ahead, tracking changes in these post-crisis factors might provide a better color on the overall attitudes of key decision makers.
Now, a slight improvement in labor markets gestures some perceived strength in the real economy. Any statement regarding recovery in economic data can trigger excessive skepticism and furious debate. Similarly, critics of the Federal Reserve point out and focus on the risk of pumping money. Maybe, those policies are desperately needed to refuel some optimism. Capital injection might be debated and, by some, negatively perceived. However, its benefits are less discussed and might be felt through near-term confidence. Of course, the consequences to quantitative easing are not fully known, but they are bound to create international conflict as seen earlier this fall. The recent measures have some taking on the belief of worrying about it in the future, and that has its own risks as well, as recently learnt. Interestingly, market cycles are known to have a short-memory (especially for negative outcomes) and adjust to the next relatively attractive movement.
Grasping Participant’s Mindset
In the current environment, the participant landscape of the stock market can be broken down into three segments. In short, the investor thought process can be classified as Daring, Neutral, or Cautious.
1. Early daring investors are glad to have entered at cheaper prices at the height of worrisome conditions. Now, these partially lucky and shrewd investors are presented with flexibility. Buyers that got in at the late part of this summer can now consider taking profits by selling, continuing to add to their gains, or seeking ideas in other areas.
2. Neutral observers are collecting data, reassessing timely entry points, and looking for a better perspective on global polices election results and ongoing asset class appreciation. In addition, the broad indexes appear extended, and waiting for a breather seems like an appealing move.
3. Cautious and relatively suspicious participants are not convinced that the Federal Reserve policy will come to fruition. Investors in this category have a strong view that the credit crisis will reinvent itself shortly in a different form.
Research & Article Quotes:
“..if weaker economic sectors in each country were allowed to go under. To compensate for the disruption this could cause, the state should encourage the development of new sectors and new points of production. There are factors making this a particularly good time to pursue such a strategy [quantitative easing]. The lack of investment in the West in recent decades means that some sectors are already hollowed out. This helps clear the way for new rounds of investment in other areas. The rise of strong emerging economies could also be an advantage for the West. A larger and more dynamic global economy presents the chance of a more developed global division of labour. Evading difficult challenges through measures such as QE means eschewing opportunities to generate real economic dynamism.” (Fund Strategy, November 8, 2010)
“Monetary expansion in the developed economies has confronted emerging markets with the trilemma. If they resist currency appreciation, they lose monetary control and get inflation and asset price bubbles (as well as political pressure over trade competitiveness). The alternatives are equally unpalatable. Reverse the trend of the past two decades towards freeing capital markets that has nurtured financial development; or accept exchange-rate appreciation and loss of competitiveness. The conventional prescription is to permit the appreciation – after all, it raises real incomes, and competitiveness is underpinned by rapid productivity growth – and switch away from export-led growth to more reliance on domestic demand. But many countries, China most vocally, are concerned that significant appreciation will hit marginal exporters, slow growth, and create unemployment.” (VOX, November 4, 2010)
Levels:
S&P 500 Index [1225.85] – Breaking out with strength above 1200 as near-term pullbacks appear inevitable. Nonetheless, a second wave of buyers is looking to reenter on weakness.
Crude [$86.85] – Flirting with annual highs after accelerating above $85, which signals strong buying and growing conviction. Meanwhile, poised for short-term correction.
Gold [$1395.50] – Continues to make an explosive run, while reaching unchartered territory. Any near-term weakness around 1350 is worth noting, given increasing buyer interest.
DXY – US Dollar Index [76.54] – Attempting to hold between the $76 and $78 range. Near-term observers will attentively watch the ability of the Dollar to sustain above the lows of November
US 10 Year Treasury Yields [2.53%] – Last month resulted in rates rising and marking some bottom. The true test is around 2.45%, according to recent chart patterns.
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.
As expected, election results reflected a message of change, and that provided a further jolt to the existing market uptrend. Now that we’ve seen this commonly reoccurring pattern of response to the shift in power, we can only conclude that one anticipated event is behind us. In fact, let’s not forget that a seasonal change from summer to fall somewhat sparked and revived the current run as well. So far, this year, the Nasdaq 100 and Russell Small Cap index are up nearly 18%. Interestingly, asset classes are rising together and, in some cases, leading to new yearly highs. For some observers, the synchronized price appreciation echoes a minor version of summer of 2007. However, the 2008 credit downturn is still lingering in the minds of investors. In other words, the crisis served as a reality check, while opening up a can of worms on worrisome issues. Sequentially, the post crisis response led to the following near-term trends that set the general tone:
• Overly aggressive regulatory discussions, mixed with political posturing
• Fear of rising interest rates
• Consensus agreement on higher volatility
• Lower willingness for capital commitment by larger companies
At this point, some of these responses can be labeled as an overreaction, but that would be too early to call. In addition, the consensus bet of rising rates and volatility proved to be grossly incorrect, despite the highly expressive statements by pundits and headline generators. In weeks ahead, tracking changes in these post-crisis factors might provide a better color on the overall attitudes of key decision makers.
Now, a slight improvement in labor markets gestures some perceived strength in the real economy. Any statement regarding recovery in economic data can trigger excessive skepticism and furious debate. Similarly, critics of the Federal Reserve point out and focus on the risk of pumping money. Maybe, those policies are desperately needed to refuel some optimism. Capital injection might be debated and, by some, negatively perceived. However, its benefits are less discussed and might be felt through near-term confidence. Of course, the consequences to quantitative easing are not fully known, but they are bound to create international conflict as seen earlier this fall. The recent measures have some taking on the belief of worrying about it in the future, and that has its own risks as well, as recently learnt. Interestingly, market cycles are known to have a short-memory (especially for negative outcomes) and adjust to the next relatively attractive movement.
Grasping Participant’s Mindset
In the current environment, the participant landscape of the stock market can be broken down into three segments. In short, the investor thought process can be classified as Daring, Neutral, or Cautious.
1. Early daring investors are glad to have entered at cheaper prices at the height of worrisome conditions. Now, these partially lucky and shrewd investors are presented with flexibility. Buyers that got in at the late part of this summer can now consider taking profits by selling, continuing to add to their gains, or seeking ideas in other areas.
2. Neutral observers are collecting data, reassessing timely entry points, and looking for a better perspective on global polices election results and ongoing asset class appreciation. In addition, the broad indexes appear extended, and waiting for a breather seems like an appealing move.
3. Cautious and relatively suspicious participants are not convinced that the Federal Reserve policy will come to fruition. Investors in this category have a strong view that the credit crisis will reinvent itself shortly in a different form.
Research & Article Quotes:
“..if weaker economic sectors in each country were allowed to go under. To compensate for the disruption this could cause, the state should encourage the development of new sectors and new points of production. There are factors making this a particularly good time to pursue such a strategy [quantitative easing]. The lack of investment in the West in recent decades means that some sectors are already hollowed out. This helps clear the way for new rounds of investment in other areas. The rise of strong emerging economies could also be an advantage for the West. A larger and more dynamic global economy presents the chance of a more developed global division of labour. Evading difficult challenges through measures such as QE means eschewing opportunities to generate real economic dynamism.” (Fund Strategy, November 8, 2010)
“Monetary expansion in the developed economies has confronted emerging markets with the trilemma. If they resist currency appreciation, they lose monetary control and get inflation and asset price bubbles (as well as political pressure over trade competitiveness). The alternatives are equally unpalatable. Reverse the trend of the past two decades towards freeing capital markets that has nurtured financial development; or accept exchange-rate appreciation and loss of competitiveness. The conventional prescription is to permit the appreciation – after all, it raises real incomes, and competitiveness is underpinned by rapid productivity growth – and switch away from export-led growth to more reliance on domestic demand. But many countries, China most vocally, are concerned that significant appreciation will hit marginal exporters, slow growth, and create unemployment.” (VOX, November 4, 2010)
Levels:
S&P 500 Index [1225.85] – Breaking out with strength above 1200 as near-term pullbacks appear inevitable. Nonetheless, a second wave of buyers is looking to reenter on weakness.
Crude [$86.85] – Flirting with annual highs after accelerating above $85, which signals strong buying and growing conviction. Meanwhile, poised for short-term correction.
Gold [$1395.50] – Continues to make an explosive run, while reaching unchartered territory. Any near-term weakness around 1350 is worth noting, given increasing buyer interest.
DXY – US Dollar Index [76.54] – Attempting to hold between the $76 and $78 range. Near-term observers will attentively watch the ability of the Dollar to sustain above the lows of November
US 10 Year Treasury Yields [2.53%] – Last month resulted in rates rising and marking some bottom. The true test is around 2.45%, according to recent chart patterns.
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, November 01, 2010
Market Outlook| November 1, 2010
“The recipe for perpetual ignorance is: be satisfied with your opinions and content with your knowledge.” - Elbert Hubbard (1856 - 1915)
Simply looking at the past two months, one can observe higher markets, strengthening Gold prices, and lower interest rates. In a few days, the much anticipated US mid-term election cycle is poised to resolve an unknown. The feel out there argues for change to be viewed as a positive, although optimists are known to find excuses to spark enthusiasm. Meanwhile, the impact of quantitative easing appears mostly misunderstood by participants. It is still questionable whether the Federal Reserve plans serve as a political posturing or a practical stimulus. Importantly, for all dots to connect, confidence restoration among business decision makers and investors should contribute heavily to overall sentiment. At that point, the fruits of capital injection can serve a greater purpose than recently felt.
As usual, currency uncertainty finds a way to resurface, as it has in the past decade. Both US and China policymakers have intervened to adjust levels in their respective currency. Meanwhile, the inter-linked world eagerly waits for impact on international trade, currency price movements, and impact on key asset classes. In addition, investors are faced with the greater unknown of pending changes in results of further policies. Despite these ‘currency wars’, there is an ongoing demand for risky assets. This imbalance is puzzling as fear and volatility have recently calmed. Therefore, how these two contradictory issues play out will be impactful on existing trends.
As stated here, on average, investors seem to get two chances per year to hit home runs. So, maybe, yet again, this unscientific saying proves to be witty. To understand where we’ve come from, we'll need to break 2010 into two segments. First, there is that run that began in early February 2010 that then peaked in spring 2010. Now, we’re in the cycle that bottomed in late summer and is still holding up. In looking ahead, it is vital not to forget the past 6-9 months, especially in regards to the credit worries in Europe, combined with bubble-like patterns in emerging markets that sparked the spring sell-offs. In days ahead, short-term emphasis and distractions are most likely to cause reactions based on election results and new economic data. However, for market participants, following and tracking changes in these points below can help formulate a clearer intermediate-term thesis.
Market Driving Forces:
• Record inflow into fixed income products as investors seek higher yields
• Low borrowing rates continue to benefit US Large Cap companies
• Stronger investment appetite for Gold, given ongoing momentum
• Increasing commodities prices as seen in food and agriculture strongly tied to emerging markets
• Advanced electronic trading methodologies, resulting in skepticism among long-term investors
• Unknown perception of regulatory solutions or pending reforms
• Lingering credit worries in Europe, combined with unproven economic strength in Western countries
Specific Ideas
Biotech offers ideas with big upside potential. However, picking the right company into a portfolio remains very challenging. That said, Life Technologies (LIFE) is demonstrating strong fundamentals, led by products related to innovative life science solutions. This is a stock worth watching for those expecting general market recovery. Continuing on the healthcare theme, Omnicell, Inc. (OMCL) provides software products related to hospital information systems. So far, the market appreciates the combination of healthcare and technology as the stock is up over 109% since March 2009. Despite the strong run, any short-term weakness can offer a buying opportunity, as Omnicell expands its market share in a growing industry while showcasing positive sales growth. Finally, Jabil (JBL), the circuit board manufacturer, appears to stabilize around $14 per share. Positive factors include a strong balance sheet and a takeover candidate and offer a high risk/high reward for the months ahead.
Article Quotes:
”’The suspension of government rice sales may raise supply concerns and strengthen prices,’ said Kiattisak Kanlayasirivat, a director at Novel Commodities SA’s Thai office, which trades about $600 million of rice a year. ‘The Thai benchmark rice price may rise to $550 a ton in November or December, when the Philippines, the world’s largest buyer, returns to the market to meet a shortfall widened by damage to crops from Typhoon Megi,’ he said. ‘Pakistan’s deadliest floods last month ruined crops worth 281.6 billion rupees ($3.27 billion), destroying 2.39 million tons of rice,’ Farm Minister Nazar Muhammad Gondal said, Sept. 28. Pakistan was the world’s third-biggest exporter last year.” ( Bloomberg, October 27, 2010)
“Yet, my soundings among those who actually do the work of creating sustainable jobs and making productive capital investments―private businesses, big and small―indicate that few are willing to commit to expanding U.S. payrolls or to undertaking significant commitments to expand capital expenditures in the U.S. other than in areas that enhance the productivity of the current workforce. Without exception, all the business leaders I interview cite nonmonetary issues―fiscal policy and regulatory constraints or, worse, uncertainty going forward―and better opportunities for earning a return on investment elsewhere as factors inhibiting their willingness to commit to expansion in the U.S.” (Federal Reserve Bank of Dallas, October 19, 2010)
Levels:
S&P 500 Index [1183.26] – Maintaining strength as the index is up 6.1% year-to-date. The recent run is facing minor pause here as digest news flow, and managing risk will be on the radar this week.
Crude [$81.43] – Getting the $82-83 per barrel continues to be a hurdle in the past 5 weeks. Interestingly, Crude failed to get above $83 during Augusts peaks. so that range is intensely watched.
Gold [$1346.75] – Slightly removed from its annual highs, yet attracting buyers, while preserving upside momentum.
DXY – US Dollar Index [77.26] – For the moment, there seems to be a bottom forming around 77, especially in the past two weeks. As a reference, last November, DXY Index recovered at 74 before making a nearly 20% run that ended in June 2010.
US 10 Year Treasury Yields [2.59%] – Like the Dollar recovery, interest rates stopped the deceleration and recovered sharply. However, holding above 2.60% appears like a near-term hurdle based on technical indicators.
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.
Simply looking at the past two months, one can observe higher markets, strengthening Gold prices, and lower interest rates. In a few days, the much anticipated US mid-term election cycle is poised to resolve an unknown. The feel out there argues for change to be viewed as a positive, although optimists are known to find excuses to spark enthusiasm. Meanwhile, the impact of quantitative easing appears mostly misunderstood by participants. It is still questionable whether the Federal Reserve plans serve as a political posturing or a practical stimulus. Importantly, for all dots to connect, confidence restoration among business decision makers and investors should contribute heavily to overall sentiment. At that point, the fruits of capital injection can serve a greater purpose than recently felt.
As usual, currency uncertainty finds a way to resurface, as it has in the past decade. Both US and China policymakers have intervened to adjust levels in their respective currency. Meanwhile, the inter-linked world eagerly waits for impact on international trade, currency price movements, and impact on key asset classes. In addition, investors are faced with the greater unknown of pending changes in results of further policies. Despite these ‘currency wars’, there is an ongoing demand for risky assets. This imbalance is puzzling as fear and volatility have recently calmed. Therefore, how these two contradictory issues play out will be impactful on existing trends.
As stated here, on average, investors seem to get two chances per year to hit home runs. So, maybe, yet again, this unscientific saying proves to be witty. To understand where we’ve come from, we'll need to break 2010 into two segments. First, there is that run that began in early February 2010 that then peaked in spring 2010. Now, we’re in the cycle that bottomed in late summer and is still holding up. In looking ahead, it is vital not to forget the past 6-9 months, especially in regards to the credit worries in Europe, combined with bubble-like patterns in emerging markets that sparked the spring sell-offs. In days ahead, short-term emphasis and distractions are most likely to cause reactions based on election results and new economic data. However, for market participants, following and tracking changes in these points below can help formulate a clearer intermediate-term thesis.
Market Driving Forces:
• Record inflow into fixed income products as investors seek higher yields
• Low borrowing rates continue to benefit US Large Cap companies
• Stronger investment appetite for Gold, given ongoing momentum
• Increasing commodities prices as seen in food and agriculture strongly tied to emerging markets
• Advanced electronic trading methodologies, resulting in skepticism among long-term investors
• Unknown perception of regulatory solutions or pending reforms
• Lingering credit worries in Europe, combined with unproven economic strength in Western countries
Specific Ideas
Biotech offers ideas with big upside potential. However, picking the right company into a portfolio remains very challenging. That said, Life Technologies (LIFE) is demonstrating strong fundamentals, led by products related to innovative life science solutions. This is a stock worth watching for those expecting general market recovery. Continuing on the healthcare theme, Omnicell, Inc. (OMCL) provides software products related to hospital information systems. So far, the market appreciates the combination of healthcare and technology as the stock is up over 109% since March 2009. Despite the strong run, any short-term weakness can offer a buying opportunity, as Omnicell expands its market share in a growing industry while showcasing positive sales growth. Finally, Jabil (JBL), the circuit board manufacturer, appears to stabilize around $14 per share. Positive factors include a strong balance sheet and a takeover candidate and offer a high risk/high reward for the months ahead.
Article Quotes:
”’The suspension of government rice sales may raise supply concerns and strengthen prices,’ said Kiattisak Kanlayasirivat, a director at Novel Commodities SA’s Thai office, which trades about $600 million of rice a year. ‘The Thai benchmark rice price may rise to $550 a ton in November or December, when the Philippines, the world’s largest buyer, returns to the market to meet a shortfall widened by damage to crops from Typhoon Megi,’ he said. ‘Pakistan’s deadliest floods last month ruined crops worth 281.6 billion rupees ($3.27 billion), destroying 2.39 million tons of rice,’ Farm Minister Nazar Muhammad Gondal said, Sept. 28. Pakistan was the world’s third-biggest exporter last year.” ( Bloomberg, October 27, 2010)
“Yet, my soundings among those who actually do the work of creating sustainable jobs and making productive capital investments―private businesses, big and small―indicate that few are willing to commit to expanding U.S. payrolls or to undertaking significant commitments to expand capital expenditures in the U.S. other than in areas that enhance the productivity of the current workforce. Without exception, all the business leaders I interview cite nonmonetary issues―fiscal policy and regulatory constraints or, worse, uncertainty going forward―and better opportunities for earning a return on investment elsewhere as factors inhibiting their willingness to commit to expansion in the U.S.” (Federal Reserve Bank of Dallas, October 19, 2010)
Levels:
S&P 500 Index [1183.26] – Maintaining strength as the index is up 6.1% year-to-date. The recent run is facing minor pause here as digest news flow, and managing risk will be on the radar this week.
Crude [$81.43] – Getting the $82-83 per barrel continues to be a hurdle in the past 5 weeks. Interestingly, Crude failed to get above $83 during Augusts peaks. so that range is intensely watched.
Gold [$1346.75] – Slightly removed from its annual highs, yet attracting buyers, while preserving upside momentum.
DXY – US Dollar Index [77.26] – For the moment, there seems to be a bottom forming around 77, especially in the past two weeks. As a reference, last November, DXY Index recovered at 74 before making a nearly 20% run that ended in June 2010.
US 10 Year Treasury Yields [2.59%] – Like the Dollar recovery, interest rates stopped the deceleration and recovered sharply. However, holding above 2.60% appears like a near-term hurdle based on technical indicators.
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, October 25, 2010
Market Outlook | October 25, 2010
“Chaos often breeds life, when order breeds habit.” - Henry Brooks
Characteristics
Besides the short-term traders seeking gains in smaller executions, there seems to be two kinds of participants that contribute to this current uptrend. Like any product, generating a buy idea requires someone who is in a positive mood or someone who is willing to take risks. Secondly, the buyer is mostly focused on the promising “feel” while understanding that various big picture worries are never-ending. Perhaps, these traits are worth noting as broad indexes are getting closer to spring 2010 highs. And there are shrewd participants who find a way to grasp details, mechanics, and discrepancy while capitalizing on existing inefficiencies. Simultaneously, there are also plenty of observers that watch the quest of risk takers with an overly skeptical view. However, as markets continue to reward risk takers, observers keep coming back for actionable ideas. The S&P 500 and Dow Jones are up over 6% for the year, and that serves as a campaign for developing strength. At the same time, the trick remains in navigating through a moody market. It’s there that devising a plan is challenging and old habits become less effective in generating returns.
Macro Radar
Talking about recent habits, buying Gold is a global phenomenon with an overly bullish consensus view. Last week, Gold prices declined by 3.04%. This is something that has not been seen in a while. In contrast, a slight jump in the US Dollar might set the stage for a surprise, especially for those daring participants. Short-term charts would suggest that this profound multi-year, inverse relationship is difficult to bet against, given the Federal Reserve’s anticipated game plan of quantitative easing. Meanwhile, rise in interest rates has not been a concern in the past few weeks. However, along with US Dollar appreciation, a rude awakening in rates can be impactful in early 2011. Before then, the brewing currency issues will need to be resolved among foreign policy makers.
Attractive Ideas
Technology-related themes have contributed to an overall stock market recovery based on innovation and discussions for Merger & Acquisitions. Rovi Corp (ROVI) is a Digital entertainment company, and with its stock prices, it consolidates between $48-50. Earnings result this week can provide a better read on investors’ expectations and create a short-term response. Nonetheless, the multi-week positive momentum can entice long-term buyers. Similarly, Aruba Networks (ARUN) provides products related to mobility solutions, and it is focused on existing wireless trends. The company reflects an innovative company with a solid sales growth, which can provide a relative outperformance. Finally, internet security companies are witnessing higher growth rates. For example, Sourcefire, (FIRE) maintains its uptrend while trading near all-time highs. The story is compelling not only to investors, but also to potential large cap technology companies that are looking to acquire and grow their empire.
Article Quotes:
“The reopening of the junk-bond market has also afforded medium-sized firms access to credit again. The businesses that have tapped the market are a cross-section of corporate America: airlines, clothing manufacturers and retailers, health-care providers, drug firms, restaurant chains, oil-exploration firms, and semiconductor manufacturers. Some of the new issuance is by firms looking to lock in long-term financing on good terms….The market’s revival has been helped by fewer defaults on high-yield bonds. The default rate on junk bonds stayed above 8% for 14 months in 2009-10.” (Economist, October 21, 2010)
“Someone buying the 10-year bond is locking in a likely ‘real,’ post-inflation yield of just 1.2% a year. Someone buying the 30-year bond should expect maybe 2.5% a year over inflation. And these are pretax rates. It is perfectly possible that some investors, without realizing it, have just locked in a negative real yield—in other words, they have made an investment that guarantees they will lose money after taxes. … The problem is that they, and their advisers, are apt to separate "asset allocation" from investing—in other words, they first decide to invest in bonds and then send money to a bond fund. The hapless bond fund manager then has to go out and ‘put that money to work,’ even in an overvalued market.” (Wall Street Journal, October 22, 2010)
Levels:
S&P 500 Index [1183.08] – Upward trend is established, and nearly a 14% run since late summer illustrates the strength of this two-month recovery. Minor pullbacks can attract buyers at 1160 or 1140.
Crude [$81.69] – Current price is in line with the 15-day moving average. Next key upside target is closer to $85.
Gold [$1322] – Early, but a natural pause following recent acceleration. If pullbacks continue to persist, in upcoming weeks, then chartist will watch $1300 and $1280 to gauge overall buyer’s appetite.
DXY – US Dollar Index [77.41] – Barely recovering from annual lows, but a glimpse of a reversal. Setting up for an upside move, especially if favorable GDP and other economic data this week.
US 10 Year Treasury Yields [2.55%] – Stabilizing around 2.40%, while attempting to bottom here. A move above 2.80% can spark further momentum if reached in the near-term.
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.
Characteristics
Besides the short-term traders seeking gains in smaller executions, there seems to be two kinds of participants that contribute to this current uptrend. Like any product, generating a buy idea requires someone who is in a positive mood or someone who is willing to take risks. Secondly, the buyer is mostly focused on the promising “feel” while understanding that various big picture worries are never-ending. Perhaps, these traits are worth noting as broad indexes are getting closer to spring 2010 highs. And there are shrewd participants who find a way to grasp details, mechanics, and discrepancy while capitalizing on existing inefficiencies. Simultaneously, there are also plenty of observers that watch the quest of risk takers with an overly skeptical view. However, as markets continue to reward risk takers, observers keep coming back for actionable ideas. The S&P 500 and Dow Jones are up over 6% for the year, and that serves as a campaign for developing strength. At the same time, the trick remains in navigating through a moody market. It’s there that devising a plan is challenging and old habits become less effective in generating returns.
Macro Radar
Talking about recent habits, buying Gold is a global phenomenon with an overly bullish consensus view. Last week, Gold prices declined by 3.04%. This is something that has not been seen in a while. In contrast, a slight jump in the US Dollar might set the stage for a surprise, especially for those daring participants. Short-term charts would suggest that this profound multi-year, inverse relationship is difficult to bet against, given the Federal Reserve’s anticipated game plan of quantitative easing. Meanwhile, rise in interest rates has not been a concern in the past few weeks. However, along with US Dollar appreciation, a rude awakening in rates can be impactful in early 2011. Before then, the brewing currency issues will need to be resolved among foreign policy makers.
Attractive Ideas
Technology-related themes have contributed to an overall stock market recovery based on innovation and discussions for Merger & Acquisitions. Rovi Corp (ROVI) is a Digital entertainment company, and with its stock prices, it consolidates between $48-50. Earnings result this week can provide a better read on investors’ expectations and create a short-term response. Nonetheless, the multi-week positive momentum can entice long-term buyers. Similarly, Aruba Networks (ARUN) provides products related to mobility solutions, and it is focused on existing wireless trends. The company reflects an innovative company with a solid sales growth, which can provide a relative outperformance. Finally, internet security companies are witnessing higher growth rates. For example, Sourcefire, (FIRE) maintains its uptrend while trading near all-time highs. The story is compelling not only to investors, but also to potential large cap technology companies that are looking to acquire and grow their empire.
Article Quotes:
“The reopening of the junk-bond market has also afforded medium-sized firms access to credit again. The businesses that have tapped the market are a cross-section of corporate America: airlines, clothing manufacturers and retailers, health-care providers, drug firms, restaurant chains, oil-exploration firms, and semiconductor manufacturers. Some of the new issuance is by firms looking to lock in long-term financing on good terms….The market’s revival has been helped by fewer defaults on high-yield bonds. The default rate on junk bonds stayed above 8% for 14 months in 2009-10.” (Economist, October 21, 2010)
“Someone buying the 10-year bond is locking in a likely ‘real,’ post-inflation yield of just 1.2% a year. Someone buying the 30-year bond should expect maybe 2.5% a year over inflation. And these are pretax rates. It is perfectly possible that some investors, without realizing it, have just locked in a negative real yield—in other words, they have made an investment that guarantees they will lose money after taxes. … The problem is that they, and their advisers, are apt to separate "asset allocation" from investing—in other words, they first decide to invest in bonds and then send money to a bond fund. The hapless bond fund manager then has to go out and ‘put that money to work,’ even in an overvalued market.” (Wall Street Journal, October 22, 2010)
Levels:
S&P 500 Index [1183.08] – Upward trend is established, and nearly a 14% run since late summer illustrates the strength of this two-month recovery. Minor pullbacks can attract buyers at 1160 or 1140.
Crude [$81.69] – Current price is in line with the 15-day moving average. Next key upside target is closer to $85.
Gold [$1322] – Early, but a natural pause following recent acceleration. If pullbacks continue to persist, in upcoming weeks, then chartist will watch $1300 and $1280 to gauge overall buyer’s appetite.
DXY – US Dollar Index [77.41] – Barely recovering from annual lows, but a glimpse of a reversal. Setting up for an upside move, especially if favorable GDP and other economic data this week.
US 10 Year Treasury Yields [2.55%] – Stabilizing around 2.40%, while attempting to bottom here. A move above 2.80% can spark further momentum if reached in the near-term.
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, October 18, 2010
Market Outlook | October 18, 2010
“Patience is bitter, but its fruit is sweet.” - Jean-Jacques Rousseau
Slowly Recovering
Despite a sluggish and slow recovery, the last few weeks continue to demonstrate optimism. That positive feel is a result of recent stock market price appreciation. For some, it is hard to grasp that a recovery is fully justified, especially with susceptible financial services. Money managers that are watching recent market actions are gaining an early wave of confidence while finding a compelling reason to dive in. Meanwhile, those keeping tab on negative news are highlighting currency wars, deeply wounded real estate environments, and unclear labor improvement. Yet, select pundits argue that low interest rates policies inevitably produce higher asset prices. Perhaps the Federal Reserve officials are too focused on short-term solutions, but the long-term challenge remains unknown. Interestingly, a majority of investors were sold the story of rising rates and inflation at the start of the year. Both indicators went against expectations so far. However, discussions of rising rates are back on the radar, and this set up attracts contrarians for weeks ahead. Meanwhile, inflation concerns were mostly subdued, but those worries from before can be quickly revisited in the mindset of investors.
A Tricky View
From a political point of view, one can argue that key participants are waiting for shifts in November’s elections. The perception can turn positive, especially after two years of harsh reality of limited capital access and a highly visible weakness in the real economy. Generally, seasonal and political changes grab the headlines of an already recovering market. At this point, the S&P 500 Index is up over 13% since late August 2010. It’s merely psychology that shapes investor behaviors. That, combined with a breath of new leadership, can trigger the confidence of key decision makers, who are hoping to hear business friendly promises from various messengers.
Specific Ideas
Investors seeking unique ideas will have to look beyond traditional Large Cap companies. For a reliable business idea, one might want to take a look at Copart (CPRT). This company offers an auction market for used cars via auction-like sales technology. Currently, the stock is trading near its 15-week average of $34.22 per share, which suggests that it is not relatively overpriced. In addition, the company’s ability to profit from used cars sales contributes to fundamental strength. Secondly, beginning next month, retail season discussions will obviously resurface among investors and consumers. Gap, Inc. (GPS) appears to offer an attractive entry point, following its first store in China while beefing up its ecommerce capabilities. Finally, internet advertising is a solid business, and the competition is increasing as it becomes a maturing business. ValueClick (VLCK) continues to showcase improving profit with no debt, and that should hit the radar of long-term investors.
Article Quotes:
“Corporate pension plans loaded up on stocks in the booming 1990s and had almost 70% of their money in them by the mid-2000s, a pattern similar to individuals. ….The reduction in stock exposure at corporate plans means many companies are likely to face the need to contribute more to their pension plans in future years. Today's low interest rates are a disaster for pension plans, for two reasons. First, they squeeze returns in funds increasingly dependent on bonds. Second, for corporate plans, they boost pension liabilities. That happens because, mathematically, falling interest rates raise the present-day cost of future liabilities. Higher liabilities make the funding gaps bigger.” (Wall Street Journal, October 18, 2010)
“Today, the yield on commodities far outstrips the yield on US Treasuries. Holding gold would have yielded 34% in less than a year, holding a Treasury note would have yielded a nominal 1%. Likewise, holding wheat futures contract or storing wheat would have yielded 84% in less than one year….While we worry about food price inflation, the Fed with its obsession on core inflation dismisses any talk of inflation. Fed governors should do their family grocery shopping and then talk. They should talk to ordinary Americans and see what they say about food prices after each visit to the supermarket.” (Asia Times, October 13, 2010)
Levels:
S&P 500 Index [1176.19] – Few points removed from April highs of 1219.80. In the past two months, the index showcased resurgence after bottoming near 1060.
Crude [$81.25] – A narrow range between $75 and $80, which suggests desperately awaiting a catalyst for a major shift. Basically, the 200-day and 50-day moving averages stand near $77, which paints the picture of non-trending pattern.
Gold [$1367.50] – As highly publicized, the commodity reached new highs last week yet again. Seasonally, a favorable period combined with brewing momentum, along with currency concerns several factors add up to this.
DXY – US Dollar Index [77.04] – Attempting to bottom as the index flirts with annual lows. Given the recent bleeding, the currency is poised for at least a short-term recovery. In addition, any positive news can create a sensitive upside response.
US 10 Year Treasury Yields [2.55%] – The current fed policy contributes to further declines in yields. However, some early signs of a turnaround, especially at 2.35%, in the past few trading days.
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.
Slowly Recovering
Despite a sluggish and slow recovery, the last few weeks continue to demonstrate optimism. That positive feel is a result of recent stock market price appreciation. For some, it is hard to grasp that a recovery is fully justified, especially with susceptible financial services. Money managers that are watching recent market actions are gaining an early wave of confidence while finding a compelling reason to dive in. Meanwhile, those keeping tab on negative news are highlighting currency wars, deeply wounded real estate environments, and unclear labor improvement. Yet, select pundits argue that low interest rates policies inevitably produce higher asset prices. Perhaps the Federal Reserve officials are too focused on short-term solutions, but the long-term challenge remains unknown. Interestingly, a majority of investors were sold the story of rising rates and inflation at the start of the year. Both indicators went against expectations so far. However, discussions of rising rates are back on the radar, and this set up attracts contrarians for weeks ahead. Meanwhile, inflation concerns were mostly subdued, but those worries from before can be quickly revisited in the mindset of investors.
A Tricky View
From a political point of view, one can argue that key participants are waiting for shifts in November’s elections. The perception can turn positive, especially after two years of harsh reality of limited capital access and a highly visible weakness in the real economy. Generally, seasonal and political changes grab the headlines of an already recovering market. At this point, the S&P 500 Index is up over 13% since late August 2010. It’s merely psychology that shapes investor behaviors. That, combined with a breath of new leadership, can trigger the confidence of key decision makers, who are hoping to hear business friendly promises from various messengers.
Specific Ideas
Investors seeking unique ideas will have to look beyond traditional Large Cap companies. For a reliable business idea, one might want to take a look at Copart (CPRT). This company offers an auction market for used cars via auction-like sales technology. Currently, the stock is trading near its 15-week average of $34.22 per share, which suggests that it is not relatively overpriced. In addition, the company’s ability to profit from used cars sales contributes to fundamental strength. Secondly, beginning next month, retail season discussions will obviously resurface among investors and consumers. Gap, Inc. (GPS) appears to offer an attractive entry point, following its first store in China while beefing up its ecommerce capabilities. Finally, internet advertising is a solid business, and the competition is increasing as it becomes a maturing business. ValueClick (VLCK) continues to showcase improving profit with no debt, and that should hit the radar of long-term investors.
Article Quotes:
“Corporate pension plans loaded up on stocks in the booming 1990s and had almost 70% of their money in them by the mid-2000s, a pattern similar to individuals. ….The reduction in stock exposure at corporate plans means many companies are likely to face the need to contribute more to their pension plans in future years. Today's low interest rates are a disaster for pension plans, for two reasons. First, they squeeze returns in funds increasingly dependent on bonds. Second, for corporate plans, they boost pension liabilities. That happens because, mathematically, falling interest rates raise the present-day cost of future liabilities. Higher liabilities make the funding gaps bigger.” (Wall Street Journal, October 18, 2010)
“Today, the yield on commodities far outstrips the yield on US Treasuries. Holding gold would have yielded 34% in less than a year, holding a Treasury note would have yielded a nominal 1%. Likewise, holding wheat futures contract or storing wheat would have yielded 84% in less than one year….While we worry about food price inflation, the Fed with its obsession on core inflation dismisses any talk of inflation. Fed governors should do their family grocery shopping and then talk. They should talk to ordinary Americans and see what they say about food prices after each visit to the supermarket.” (Asia Times, October 13, 2010)
Levels:
S&P 500 Index [1176.19] – Few points removed from April highs of 1219.80. In the past two months, the index showcased resurgence after bottoming near 1060.
Crude [$81.25] – A narrow range between $75 and $80, which suggests desperately awaiting a catalyst for a major shift. Basically, the 200-day and 50-day moving averages stand near $77, which paints the picture of non-trending pattern.
Gold [$1367.50] – As highly publicized, the commodity reached new highs last week yet again. Seasonally, a favorable period combined with brewing momentum, along with currency concerns several factors add up to this.
DXY – US Dollar Index [77.04] – Attempting to bottom as the index flirts with annual lows. Given the recent bleeding, the currency is poised for at least a short-term recovery. In addition, any positive news can create a sensitive upside response.
US 10 Year Treasury Yields [2.55%] – The current fed policy contributes to further declines in yields. However, some early signs of a turnaround, especially at 2.35%, in the past few trading days.
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, October 11, 2010
Market Outlook | October 11, 2010
“A strong positive mental attitude will create more miracles than any wonder drug.” - Patricia Neal
The US 10 Year Treasury Yields closed near 2.30% last Friday and serves as further illustration of a dominant theme of low rates. Just a year ago, rates hovered around 3.41%. Basically, these low yields are not too attractive for money managers seeking alternative solutions. Perhaps, this explains the increase in sales of speculative bonds that saw $98.9 billion inflow last quarter. In addition, weakening Dollar continues to reach new lows. Inversely, the strength of Gold is a defined uptrend and a uniformly accepted investment idea. Perhaps, this begs the question of potential instability in foreign relations, which are closely tied to currency policies and issues among nations. This is a discussion point that’s bound to spark a sensitive response in global relations.
Meanwhile, volatility appears relatively low, and it is not a major factor as expected by most at the start of the year. Considering the points above, the Federal Reserve has a tricky task ahead, along with fragile belief of the current financial system. As for US stocks, broad indexes are slowly ticking up, and they trigger some hope of reaching back to spring highs. Emerging market funds continue to accumulate assets versus US stocks, which are seeing further outflow. According to EPFR Global, emerging markets accumulated more than $6 billion last week. Once again, individual investor sentiment is weak, and retail desire to own stocks continues to dwindle.
Generally, optimism is one “selling point” of those in financial services, seeking out new investors. Now, some government officials will face that challenge of restoring confidence. Importantly, the hype of promises might not live up to the substance, especially when examining recent trends in labor data. Therefore, to produce a sustainable recovery, sideline investors need to get involved and overcome ongoing day-to-day hesitancy. Simply, that’s understandable given suspenseful tax laws, unclear shift in power, and pending financial regulations. Larger firms are focused on holding cash or buying back their own shares rather than implementing expansion plans. In other words, corporate confidence for capital investments is not too optimistic. Yet, the major issue for leaders is to gauge the consequences of regulatory risk – a murky puzzle.
In finding investable themes, one might look towards new discovery and efficient products. However, auto parts companies are trending higher and reaching peak levels for 2010. For example, Dana Holding Corporation (DAN) survived going bankrupt a few years ago and continues to strongly outperform. A similar pattern is visible in BorgWarner (BWA) and Autoliv (ALV). The group benefits from strong cash balance and low debt, which the market is currently rewarding. This theme exemplifies slower consumer spending and reflects the macro attitude. Meanwhile, this showcases investor willingness to buy companies with predictable cash flows.
Article Quotes:
“Sitting on these unprecedented levels of cash, U.S. companies are buying back their own stock in droves. So far this year, firms have announced they will purchase $273 billion of their own shares, more than five times as much compared with this time last year…. Microsoft, for instance, borrowed $4.75 billion last month by issuing new bonds at rock-bottom interest rates and announced it would use some of that money to buy back shares. The company already has nearly $37 billion in cash….The tech company is reluctant to repatriate the money, because it would get hit with a huge corporate tax bill.” (Washington Post, October 7, 2010)
“The excess reserves of private banks parked at the 12 Federal Reserve Banks exceed $1 trillion. Nonfinancial corporations have an aggregate liquid asset ratio running at a seven-year high; cash flow from current production is running above total investment expenditure; cash as a percentage of market cap is extraordinarily high. Credit availability remains a challenge for small businesses, but only 4 percent of small businesses surveyed by the National Federation of Independent Business reported financing as their top business problem. And reports of lagging receivables or the stretching out of payment terms that were so prominent only one year ago in the corporate supply chain have become as scarce as hens’ teeth.” (Federal Reserve of Dallas, October 7, 2010)
Levels:
S&P 500 Index [1165.15] – After bottoming around 1140, the index is establishing a recovery. Those expecting a rally will use April highs of 1219 as a benchmark on strength of a pending rally.
Crude [$82.66] – Establishing a new trading range above $80, which is overall, in a sideway range while gaining near-term momentum.
Gold [$1341] – Intra-day highs of 1346 were reached last week, which was a continuation of an explosive run that reignited in early September. Interestingly, Gold is 13% above its 200-day moving average.
DXY – US Dollar Index [77.32] – Closed at annual lows as the currency closely mirrors the lower rate pattern, reaching extreme bearish levels, especially below 80.
US 10 Year Treasury Yields [2.39%] – Struggling to hold above 2.50%, which signals a beginning of a new downtrend. As a perspective, the lows of fall 2008 stood at 2.03% at the height of the credit crisis.
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.
=
The US 10 Year Treasury Yields closed near 2.30% last Friday and serves as further illustration of a dominant theme of low rates. Just a year ago, rates hovered around 3.41%. Basically, these low yields are not too attractive for money managers seeking alternative solutions. Perhaps, this explains the increase in sales of speculative bonds that saw $98.9 billion inflow last quarter. In addition, weakening Dollar continues to reach new lows. Inversely, the strength of Gold is a defined uptrend and a uniformly accepted investment idea. Perhaps, this begs the question of potential instability in foreign relations, which are closely tied to currency policies and issues among nations. This is a discussion point that’s bound to spark a sensitive response in global relations.
Meanwhile, volatility appears relatively low, and it is not a major factor as expected by most at the start of the year. Considering the points above, the Federal Reserve has a tricky task ahead, along with fragile belief of the current financial system. As for US stocks, broad indexes are slowly ticking up, and they trigger some hope of reaching back to spring highs. Emerging market funds continue to accumulate assets versus US stocks, which are seeing further outflow. According to EPFR Global, emerging markets accumulated more than $6 billion last week. Once again, individual investor sentiment is weak, and retail desire to own stocks continues to dwindle.
Generally, optimism is one “selling point” of those in financial services, seeking out new investors. Now, some government officials will face that challenge of restoring confidence. Importantly, the hype of promises might not live up to the substance, especially when examining recent trends in labor data. Therefore, to produce a sustainable recovery, sideline investors need to get involved and overcome ongoing day-to-day hesitancy. Simply, that’s understandable given suspenseful tax laws, unclear shift in power, and pending financial regulations. Larger firms are focused on holding cash or buying back their own shares rather than implementing expansion plans. In other words, corporate confidence for capital investments is not too optimistic. Yet, the major issue for leaders is to gauge the consequences of regulatory risk – a murky puzzle.
In finding investable themes, one might look towards new discovery and efficient products. However, auto parts companies are trending higher and reaching peak levels for 2010. For example, Dana Holding Corporation (DAN) survived going bankrupt a few years ago and continues to strongly outperform. A similar pattern is visible in BorgWarner (BWA) and Autoliv (ALV). The group benefits from strong cash balance and low debt, which the market is currently rewarding. This theme exemplifies slower consumer spending and reflects the macro attitude. Meanwhile, this showcases investor willingness to buy companies with predictable cash flows.
Article Quotes:
“Sitting on these unprecedented levels of cash, U.S. companies are buying back their own stock in droves. So far this year, firms have announced they will purchase $273 billion of their own shares, more than five times as much compared with this time last year…. Microsoft, for instance, borrowed $4.75 billion last month by issuing new bonds at rock-bottom interest rates and announced it would use some of that money to buy back shares. The company already has nearly $37 billion in cash….The tech company is reluctant to repatriate the money, because it would get hit with a huge corporate tax bill.” (Washington Post, October 7, 2010)
“The excess reserves of private banks parked at the 12 Federal Reserve Banks exceed $1 trillion. Nonfinancial corporations have an aggregate liquid asset ratio running at a seven-year high; cash flow from current production is running above total investment expenditure; cash as a percentage of market cap is extraordinarily high. Credit availability remains a challenge for small businesses, but only 4 percent of small businesses surveyed by the National Federation of Independent Business reported financing as their top business problem. And reports of lagging receivables or the stretching out of payment terms that were so prominent only one year ago in the corporate supply chain have become as scarce as hens’ teeth.” (Federal Reserve of Dallas, October 7, 2010)
Levels:
S&P 500 Index [1165.15] – After bottoming around 1140, the index is establishing a recovery. Those expecting a rally will use April highs of 1219 as a benchmark on strength of a pending rally.
Crude [$82.66] – Establishing a new trading range above $80, which is overall, in a sideway range while gaining near-term momentum.
Gold [$1341] – Intra-day highs of 1346 were reached last week, which was a continuation of an explosive run that reignited in early September. Interestingly, Gold is 13% above its 200-day moving average.
DXY – US Dollar Index [77.32] – Closed at annual lows as the currency closely mirrors the lower rate pattern, reaching extreme bearish levels, especially below 80.
US 10 Year Treasury Yields [2.39%] – Struggling to hold above 2.50%, which signals a beginning of a new downtrend. As a perspective, the lows of fall 2008 stood at 2.03% at the height of the credit crisis.
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, October 04, 2010
Market Outlook| October 4, 2010
“Courage is resistance to fear, mastery of fear - not absence of fear.” - Mark Twain (1835 - 1910)
The strong month of September might have surprised those who heavily relied on average historical returns. Traditionally and statistically, the month of September is known to produce less than attractive returns .Perhaps, this time around, the anticipation of the unknown is even more thrilling, given that pessimistic views were becoming tiresome. Yet, a quick reminder, that relying solely on odds presents some dangers and neglects the mindset of investors. Despite a neutral to down weekly finish, the overall stock market showcased an impressive strength this early autumn. Another part to this puzzle is the waiting game and search for guidance from the election season. That clarity is missing, which has kept the bigger trends intact. On the other hand, there are pending issues in this new era of Financial Markets. Managers are adapting to new mechanics changes, which include exchange policies as a result of the flash crash earlier this spring. Clearly, various legislative changes to asset management, along with shrinking liquidity, are issues that can influence overall transactions. Finally, the past few weeks offered a relief rally, but sorting out European credit worries is unclear, which impacts the fragile sentiment.
Same Old Gold and Dollar Story
In terms of big macro drivers, there are not many changes to these decade-old themes. Specifically, the current established trend of strength in Gold prices, lower rates, and declining US Dollar. This relationship is highly publicized and remains dull, while failing to create a sense of excitement for aggressive investors. The weakness in the US Dollar is interlinked with various financial assets and in the radar of policy officials. Conversely, the momentum in Gold prices reemphasizess the movement towards risk aversion. That said, in the month ahead, currency policies are poised to set the tone for international relations as well as market behaviors. The lack of major shifts in macro trends for several years begs the question: why fight the existing trend? However, there are speculators that are active in the guessing game, in a period where most are discouraged to make gutsy bets. The surprise element finds a way to attract those eagerly waiting for an inflection point. However, at this point, the force behind a weaker Dollar (increasing Gold prices) remains too powerful. Each season, those betting against these trends are dwindling and failing to attract contrarian fans.
Few Positive Trends
Mergers & Acquisitions is a promising theme that’s gaining some traction and mainstream attention in that past few years. According to Bloomberg, “The jump in deals in the third quarter brings total announced takeovers to $1.48 trillion in the first nine months of 2010, compared with $1.76 trillion in all of 2009." This showcases that cash, waiting on the sidelines, is seeking new opportunity and emphasizes the bias toward further strength in large cap companies. Much of M&A discussions are centered on technology and other innovative-based groups. Many wait if larger companies plan to acquire growth-related companies. For those searching for company specific bets, there are opportunities, especially in cell phone technology – for example, Skyworks (SWKS), a company benefiting from the growing handset market, while projecting solid revenues. Interestingly, the shares of Skyworks rose nearly 500% since December 2008, illustrating the impressive outperformance. Other companies in a similar area include TriQuint (TQNT) and RF Micro (RFMD). On a similar point, biotech and medical equipment showcase fundamental strength, and they are poised to attract longer-term investors.
Article Quotes
“The crisis was followed by the slashing of interest rates in the developed world. These have had a limited effect in reviving lending in Western economies. But they have encouraged Western investors to buy higher-yielding assets, like emerging-market equities. Emerging-market equity funds have already received inflows of $45 billion this year, according to EPFR Global, a research group. And low rates will also boost credit creation in those developing countries that import American monetary policy via managed exchange rates.” (Economist, September 30, 2010)
"An 'international currency war' has broken out, according to Guido Mantega, Brazil's finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness. Mr Mantega's comments... follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.” (Financial Times, September 27, 2010)
Levels
S&P 500 Index [1146.24] – Consolidating near 1140 range, which begs further question about sustainability. Interestingly, the index ended the week closer to the higher range of this summer’s trend. A 13% rise since the lows reached on July 1, 2010.
Crude [$81.60] – A series of sharp upside moves, which were sparked by a weaker US Dollar. The commodity closed the month on a very strong note. It currently is not far removed from August 4th highs of $82.97.
Gold [$1317] – Explosive momentum remains in full gear. Psychologically breaking the 1300 mark sends a strong message of strength and potentially attracts addtional wave of new buyers in the current cycle.
DXY – US Dollar Index [78.08] – Since June 7, 2010, the US Dollar Index has declined by 12%. It ison the verge of giving up the annual gains witnessed earlier part of this year.
US 10 Year Treasury Yields [2.51%] – Further weakness as Yields attempt to hold above 2.60, which now seem rather fragile.
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.
The strong month of September might have surprised those who heavily relied on average historical returns. Traditionally and statistically, the month of September is known to produce less than attractive returns .Perhaps, this time around, the anticipation of the unknown is even more thrilling, given that pessimistic views were becoming tiresome. Yet, a quick reminder, that relying solely on odds presents some dangers and neglects the mindset of investors. Despite a neutral to down weekly finish, the overall stock market showcased an impressive strength this early autumn. Another part to this puzzle is the waiting game and search for guidance from the election season. That clarity is missing, which has kept the bigger trends intact. On the other hand, there are pending issues in this new era of Financial Markets. Managers are adapting to new mechanics changes, which include exchange policies as a result of the flash crash earlier this spring. Clearly, various legislative changes to asset management, along with shrinking liquidity, are issues that can influence overall transactions. Finally, the past few weeks offered a relief rally, but sorting out European credit worries is unclear, which impacts the fragile sentiment.
Same Old Gold and Dollar Story
In terms of big macro drivers, there are not many changes to these decade-old themes. Specifically, the current established trend of strength in Gold prices, lower rates, and declining US Dollar. This relationship is highly publicized and remains dull, while failing to create a sense of excitement for aggressive investors. The weakness in the US Dollar is interlinked with various financial assets and in the radar of policy officials. Conversely, the momentum in Gold prices reemphasizess the movement towards risk aversion. That said, in the month ahead, currency policies are poised to set the tone for international relations as well as market behaviors. The lack of major shifts in macro trends for several years begs the question: why fight the existing trend? However, there are speculators that are active in the guessing game, in a period where most are discouraged to make gutsy bets. The surprise element finds a way to attract those eagerly waiting for an inflection point. However, at this point, the force behind a weaker Dollar (increasing Gold prices) remains too powerful. Each season, those betting against these trends are dwindling and failing to attract contrarian fans.
Few Positive Trends
Mergers & Acquisitions is a promising theme that’s gaining some traction and mainstream attention in that past few years. According to Bloomberg, “The jump in deals in the third quarter brings total announced takeovers to $1.48 trillion in the first nine months of 2010, compared with $1.76 trillion in all of 2009." This showcases that cash, waiting on the sidelines, is seeking new opportunity and emphasizes the bias toward further strength in large cap companies. Much of M&A discussions are centered on technology and other innovative-based groups. Many wait if larger companies plan to acquire growth-related companies. For those searching for company specific bets, there are opportunities, especially in cell phone technology – for example, Skyworks (SWKS), a company benefiting from the growing handset market, while projecting solid revenues. Interestingly, the shares of Skyworks rose nearly 500% since December 2008, illustrating the impressive outperformance. Other companies in a similar area include TriQuint (TQNT) and RF Micro (RFMD). On a similar point, biotech and medical equipment showcase fundamental strength, and they are poised to attract longer-term investors.
Article Quotes
“The crisis was followed by the slashing of interest rates in the developed world. These have had a limited effect in reviving lending in Western economies. But they have encouraged Western investors to buy higher-yielding assets, like emerging-market equities. Emerging-market equity funds have already received inflows of $45 billion this year, according to EPFR Global, a research group. And low rates will also boost credit creation in those developing countries that import American monetary policy via managed exchange rates.” (Economist, September 30, 2010)
"An 'international currency war' has broken out, according to Guido Mantega, Brazil's finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness. Mr Mantega's comments... follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.” (Financial Times, September 27, 2010)
Levels
S&P 500 Index [1146.24] – Consolidating near 1140 range, which begs further question about sustainability. Interestingly, the index ended the week closer to the higher range of this summer’s trend. A 13% rise since the lows reached on July 1, 2010.
Crude [$81.60] – A series of sharp upside moves, which were sparked by a weaker US Dollar. The commodity closed the month on a very strong note. It currently is not far removed from August 4th highs of $82.97.
Gold [$1317] – Explosive momentum remains in full gear. Psychologically breaking the 1300 mark sends a strong message of strength and potentially attracts addtional wave of new buyers in the current cycle.
DXY – US Dollar Index [78.08] – Since June 7, 2010, the US Dollar Index has declined by 12%. It ison the verge of giving up the annual gains witnessed earlier part of this year.
US 10 Year Treasury Yields [2.51%] – Further weakness as Yields attempt to hold above 2.60, which now seem rather fragile.
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, September 27, 2010
Market Outlook| September 27, 2010
“Faith and doubt both are needed - not as antagonists, but working side by side to take us around the unknown curve.” (Lillian Smith 1897-1966)
Optimists are witnessing a strong month of September, given that we’ve taken a pause from major worrisome news. A weekly gain of 2.05% in the S&P 500 index serves as a warning for pessimists and a mild barometer of faith for sideline observers. At the same time, the Federal Reserve policy did not alter trends in interest rates and the US Dollar. Similarly, no major attitude changes in Gold, as it remains near all-time highs, and volatility is relatively calm. The challenge ahead is to look beyond recent relationships in macro indicators and accept potential surprises, especially in commodities and currencies.
Market observers are accustomed to pointing to fundamentals or trends in momentum when making calculated assessments. However, in this new cycle, anticipating decisions by policymakers extends beyond traditional analysis. For example, these issues are in the minds of investors: Bank of Japan’s intervention, trade discussions between US and China, and the ongoing capital flow to emerging markets. In other words, the idea of globalization is being reexamined, and the marketplace continues to evolve, while attracting a new breed of investors. However, political debates of crisis and tax management are inevitable and very difficult to ignore. Similarly, Brazil and China will face critical decisions in handling and sustaining recent growth. At some point, the overall consensus will have to accept these issues as regular business concerns in upcoming years
The current administration is providing some hints and making changes in anticipation of mid-term elections. Specifically, the recent changes of economic advisors suggests a search for balanced and new ideas. Similarly, there is a growing view that business leaders would perceive a balanced Congress as a positive catalyst. Through this maze, there are signs of US economic stability in labor and manufacturing. These slight improvements, especially in economic numbers, might not be too visible in mainstream headlines. As confidence is restored, investors might appreciate that this is not 2008. (Notes from September 2008 attached below) As in, it was only two falls ago, where “panic” became the sole and dominate word in financial services. As investors slowly put things into perspective, this might provide further boost to this fragile optimism. Yet the response to the recent crisis has contributed to a heavy rotation into Gold and Fixed Income products. Now, in looking ahead, some wonder if this current trend of risk aversion continues to hold. Maybe, here is another hint in terms of investor mindset: "International investors frustrated with some of the lowest yields on record for U.S. housing bonds are turning to Canada for higher returns. Canada Housing Trust sold C$6.25 billion ($6.1bn) of five-year bonds last week to yield 24.5 bps more than benchmark rates.” (Bloomberg, September 20, 2010)
Levels:
S&P 500 Index [1148.67] – Clearly, at 1040, buyers mostly find markets undervalued. Meanwhile, at 1140, there are growing questions of legitimacy of overall strength. Any pullbacks that show strong support at 1120 can set up a positive seasonal run.
Crude [$76.49] – Interestingly, only a few points removed from its 50-day moving average. That showcases the lack of trend in oil in recent weeks. Furthermore, the 200-day moving average stands at 77.68, stating the current pause in the fundamentals and sentiment of the commodity.
Gold [$1297] – The momentum continues its uptrend and closing near all-time highs. A 22% appreciation since February 5th lows .
DXY – US Dollar Index [79.39] – After a short-lived strength, the index is below a key $80 level. Near-term worries, combined with multi-year trends, reconfirm further weakness. Combining low rate and strengthening Gold create a hurdle for a recovery. Next key level is near annual lows of $76.60.
US 10 Year Treasury Yields [2.60%] – Attempting to stabilize and remains fragile, especially with few percentage points removed from annual lows. Like the Dollar, the threat of new is in the minds of traders and chartists.
Article Quotes:
"Leveraged-loan returns rose to their highest level of the year this week as Brickman Group Holdings Inc. took advantage of investor demand and marketed a loan without financial-maintenance requirements... Investors in search of extra yield have turned to high- risk, high-return loans, driving supply to more than double this year and allowing companies to bring so-called covenant-lite deals to market. Those loans are devoid of restrictions such as a mandate on maximum leverage, or debt to earnings before interest, taxes, depreciation, and amortization." (Bloomberg, September 24, 2010)
“While monthly data may be mixed, the trend data are consistently positive. Private job growth has been less than hoped for but positive nonetheless. Private payrolls increased 630,000 since January 1. In the first half of the year, private labor income increased in all components: hours worked, employment and wages. Hours worked have risen more rapidly than employment, which is typical for the early stages of an economic recovery. In fact, we are experiencing a better pace of recovery this time than at this point in our previous two economic recoveries….. While we are not where we want to be, the economy is recovering and, barring specific shocks and bad policy, it should continue to grow over the next several quarters.” (Thomas M. Hoenig, Federal Reserve Bank of Kansas City, August 13, 2010)
From the archives: September 22, 2008
http://bit.ly/bhBSxK
“A memorable and historic week!....The financial meltdown in this capacity was unprecedented. Nonetheless, from an investor's view, hints of a cycle peak were mildly visible from various angles. Leading up to this decline, homebuilders peaked in 2005. Hard assets (Gold/Crude) soared most of this decade, while "paper assets" were out of favor. Credit concerns and a weakening economy have been a reality for the past year and a half. In March, the Bear Sterns failure sent alarms with lingering effect. This summer, lows were not enough to create a market bottom. At the same time, mid-week sentiment and panic selling further decelerated an oversold market. (Markettakers - September 22, 2008)
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.
Optimists are witnessing a strong month of September, given that we’ve taken a pause from major worrisome news. A weekly gain of 2.05% in the S&P 500 index serves as a warning for pessimists and a mild barometer of faith for sideline observers. At the same time, the Federal Reserve policy did not alter trends in interest rates and the US Dollar. Similarly, no major attitude changes in Gold, as it remains near all-time highs, and volatility is relatively calm. The challenge ahead is to look beyond recent relationships in macro indicators and accept potential surprises, especially in commodities and currencies.
Market observers are accustomed to pointing to fundamentals or trends in momentum when making calculated assessments. However, in this new cycle, anticipating decisions by policymakers extends beyond traditional analysis. For example, these issues are in the minds of investors: Bank of Japan’s intervention, trade discussions between US and China, and the ongoing capital flow to emerging markets. In other words, the idea of globalization is being reexamined, and the marketplace continues to evolve, while attracting a new breed of investors. However, political debates of crisis and tax management are inevitable and very difficult to ignore. Similarly, Brazil and China will face critical decisions in handling and sustaining recent growth. At some point, the overall consensus will have to accept these issues as regular business concerns in upcoming years
The current administration is providing some hints and making changes in anticipation of mid-term elections. Specifically, the recent changes of economic advisors suggests a search for balanced and new ideas. Similarly, there is a growing view that business leaders would perceive a balanced Congress as a positive catalyst. Through this maze, there are signs of US economic stability in labor and manufacturing. These slight improvements, especially in economic numbers, might not be too visible in mainstream headlines. As confidence is restored, investors might appreciate that this is not 2008. (Notes from September 2008 attached below) As in, it was only two falls ago, where “panic” became the sole and dominate word in financial services. As investors slowly put things into perspective, this might provide further boost to this fragile optimism. Yet the response to the recent crisis has contributed to a heavy rotation into Gold and Fixed Income products. Now, in looking ahead, some wonder if this current trend of risk aversion continues to hold. Maybe, here is another hint in terms of investor mindset: "International investors frustrated with some of the lowest yields on record for U.S. housing bonds are turning to Canada for higher returns. Canada Housing Trust sold C$6.25 billion ($6.1bn) of five-year bonds last week to yield 24.5 bps more than benchmark rates.” (Bloomberg, September 20, 2010)
Levels:
S&P 500 Index [1148.67] – Clearly, at 1040, buyers mostly find markets undervalued. Meanwhile, at 1140, there are growing questions of legitimacy of overall strength. Any pullbacks that show strong support at 1120 can set up a positive seasonal run.
Crude [$76.49] – Interestingly, only a few points removed from its 50-day moving average. That showcases the lack of trend in oil in recent weeks. Furthermore, the 200-day moving average stands at 77.68, stating the current pause in the fundamentals and sentiment of the commodity.
Gold [$1297] – The momentum continues its uptrend and closing near all-time highs. A 22% appreciation since February 5th lows .
DXY – US Dollar Index [79.39] – After a short-lived strength, the index is below a key $80 level. Near-term worries, combined with multi-year trends, reconfirm further weakness. Combining low rate and strengthening Gold create a hurdle for a recovery. Next key level is near annual lows of $76.60.
US 10 Year Treasury Yields [2.60%] – Attempting to stabilize and remains fragile, especially with few percentage points removed from annual lows. Like the Dollar, the threat of new is in the minds of traders and chartists.
Article Quotes:
"Leveraged-loan returns rose to their highest level of the year this week as Brickman Group Holdings Inc. took advantage of investor demand and marketed a loan without financial-maintenance requirements... Investors in search of extra yield have turned to high- risk, high-return loans, driving supply to more than double this year and allowing companies to bring so-called covenant-lite deals to market. Those loans are devoid of restrictions such as a mandate on maximum leverage, or debt to earnings before interest, taxes, depreciation, and amortization." (Bloomberg, September 24, 2010)
“While monthly data may be mixed, the trend data are consistently positive. Private job growth has been less than hoped for but positive nonetheless. Private payrolls increased 630,000 since January 1. In the first half of the year, private labor income increased in all components: hours worked, employment and wages. Hours worked have risen more rapidly than employment, which is typical for the early stages of an economic recovery. In fact, we are experiencing a better pace of recovery this time than at this point in our previous two economic recoveries….. While we are not where we want to be, the economy is recovering and, barring specific shocks and bad policy, it should continue to grow over the next several quarters.” (Thomas M. Hoenig, Federal Reserve Bank of Kansas City, August 13, 2010)
From the archives: September 22, 2008
http://bit.ly/bhBSxK
“A memorable and historic week!....The financial meltdown in this capacity was unprecedented. Nonetheless, from an investor's view, hints of a cycle peak were mildly visible from various angles. Leading up to this decline, homebuilders peaked in 2005. Hard assets (Gold/Crude) soared most of this decade, while "paper assets" were out of favor. Credit concerns and a weakening economy have been a reality for the past year and a half. In March, the Bear Sterns failure sent alarms with lingering effect. This summer, lows were not enough to create a market bottom. At the same time, mid-week sentiment and panic selling further decelerated an oversold market. (Markettakers - September 22, 2008)
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, September 20, 2010
Market Outlook | September 20, 2010
“Patience is the best remedy for every trouble”. Titus Maccius Plautus
Even when stock markets showcase some glimpse of hope, the rush to Gold continues as the commodity closed the week at new all-time highs. In fact, any words of optimism or intra-day market strength cannot live up to the multi-decade, and well documented uptrend in Gold. That’s a prevailing theme in the past eight years as the idea dominates mainstream acceptance and shapes the consensus mindset. Of course, several factors contribute to Gold’s appreciation. However, in recent weeks, its relative attractiveness is visible and serves as an example that shows the power of momentum.
The S&P 500 index is barely positive for the year. This is mostly driven by the sharp recovery following some ease from escalated pessimism. In fact, investor sentiment points to some signs of confidence restoration. According to AAII, US small investor sentiment reached the highest optimistic reading for 2010. This mildly coincides with tamed volatility of the past five months.
However, global stock indexes appear extended and poised for some short-term declines. For example, the Turkish Index (TUR) is up nearly 39 % since February 2010.Similarly, South Africa (EZA), South Korea (EWY) and India (INP) have showcased leadership especially after stabilizing in late summer. These are themes worth tracking as these moves serve as a clue for the next multi-year cycle. In other words, investors will be tested on their overall willingness to stick with these themes especially during periods of sudden macro shift. At the same time, would investors add more capital into emerging themes and pull away from US stocks? That’s a reoccurring question facing investment managers planning for 2-3 years.
The highly anticipated Federal Reserve meeting takes place this week and it may cause some near-term reaction. Yet, many wonder if economic data or rate outlook lead to surprises. In addition, investors are deciding between placing bets ahead of mid-term elections or waiting for political results. At this point, the technicals confirm improvement in markets but warn of minor pullbacks. When examining the collective behavior, the market feel appears neutral but risk-takers are pleased to see rewards in niche ideas found in less obvious areas. Even in US markets, stock specific calls across various groups are proving to be fruitful. For example, DTV (Direct TV), SWKS (Skyworks), and AMZN (Amazon.com) have rewarded brave risk takers who purchased shares during summer lows.
Article Quotes:
"China will introduce credit-default swaps by year-end, allowing banks to hedge risk while restricting the contracts to avoid pitfalls the U.S. credit markets experienced over the last several years, according to an official with a state-backed Chinese financial association. China will limit the amount of leverage used in credit swaps and won't permit the contracts to be written on high-risk assets such as subprime mortgages, Shi Wenchao, secretary general of the National Association of Financial Market Institutional Investors, told reporters..." (Bloomberg, September 14, 2010)
“The politics of currency intervention are actually quite simple. Japan’s economy is dominated by large manufacturers that export lots of goods to Americans. The problem is that Americans can’t really afford to buy in the quantities that they did just a few years ago. So, instead of looking for new customers with more money to spend, either in their own country or in other productive economies, Japanese manufacturers use their political clout to lobby their government to bailout their traditional U.S. customers. …. In short, pushing up the dollar allows Japanese exporters to postpone a necessary, but costly, restructuring.” (Euro Pacific Capital, September 17, 2010)
Levels:
S&P 500 Index [1125.59] –Attempting to hold above 1120, which has not been sustainable for the most part of 2010. Odd makers observing those previous patterns wonder if a peak is a possibility.
Crude [$73.66] – Since October 2009, crude has remained in a tight range between $70-80. Clearly, this signals a consolidation phase following an explosive decade. In other words, momentum seekers might begin to seek explosive runs in other areas.
Gold [$1274] – Slowly but clearly, making all-time highs. Positive momentum remains intact as the index is over 9% above its 200 day moving average.
DXY– US Dollar Index [81.39] – Stands 15% higher than lows set in March 2008. Yet it feels like we’ve been in a similar range for several years. The 15 month moving average stands near 80.
US 10 Year Treasury Yields [2.73%] – Early form of stability in yields following the summer lows on August 25, 2010. Now, it’s flirting few points below its 50 day moving average of 2.78%.
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.
Even when stock markets showcase some glimpse of hope, the rush to Gold continues as the commodity closed the week at new all-time highs. In fact, any words of optimism or intra-day market strength cannot live up to the multi-decade, and well documented uptrend in Gold. That’s a prevailing theme in the past eight years as the idea dominates mainstream acceptance and shapes the consensus mindset. Of course, several factors contribute to Gold’s appreciation. However, in recent weeks, its relative attractiveness is visible and serves as an example that shows the power of momentum.
The S&P 500 index is barely positive for the year. This is mostly driven by the sharp recovery following some ease from escalated pessimism. In fact, investor sentiment points to some signs of confidence restoration. According to AAII, US small investor sentiment reached the highest optimistic reading for 2010. This mildly coincides with tamed volatility of the past five months.
However, global stock indexes appear extended and poised for some short-term declines. For example, the Turkish Index (TUR) is up nearly 39 % since February 2010.Similarly, South Africa (EZA), South Korea (EWY) and India (INP) have showcased leadership especially after stabilizing in late summer. These are themes worth tracking as these moves serve as a clue for the next multi-year cycle. In other words, investors will be tested on their overall willingness to stick with these themes especially during periods of sudden macro shift. At the same time, would investors add more capital into emerging themes and pull away from US stocks? That’s a reoccurring question facing investment managers planning for 2-3 years.
The highly anticipated Federal Reserve meeting takes place this week and it may cause some near-term reaction. Yet, many wonder if economic data or rate outlook lead to surprises. In addition, investors are deciding between placing bets ahead of mid-term elections or waiting for political results. At this point, the technicals confirm improvement in markets but warn of minor pullbacks. When examining the collective behavior, the market feel appears neutral but risk-takers are pleased to see rewards in niche ideas found in less obvious areas. Even in US markets, stock specific calls across various groups are proving to be fruitful. For example, DTV (Direct TV), SWKS (Skyworks), and AMZN (Amazon.com) have rewarded brave risk takers who purchased shares during summer lows.
Article Quotes:
"China will introduce credit-default swaps by year-end, allowing banks to hedge risk while restricting the contracts to avoid pitfalls the U.S. credit markets experienced over the last several years, according to an official with a state-backed Chinese financial association. China will limit the amount of leverage used in credit swaps and won't permit the contracts to be written on high-risk assets such as subprime mortgages, Shi Wenchao, secretary general of the National Association of Financial Market Institutional Investors, told reporters..." (Bloomberg, September 14, 2010)
“The politics of currency intervention are actually quite simple. Japan’s economy is dominated by large manufacturers that export lots of goods to Americans. The problem is that Americans can’t really afford to buy in the quantities that they did just a few years ago. So, instead of looking for new customers with more money to spend, either in their own country or in other productive economies, Japanese manufacturers use their political clout to lobby their government to bailout their traditional U.S. customers. …. In short, pushing up the dollar allows Japanese exporters to postpone a necessary, but costly, restructuring.” (Euro Pacific Capital, September 17, 2010)
Levels:
S&P 500 Index [1125.59] –Attempting to hold above 1120, which has not been sustainable for the most part of 2010. Odd makers observing those previous patterns wonder if a peak is a possibility.
Crude [$73.66] – Since October 2009, crude has remained in a tight range between $70-80. Clearly, this signals a consolidation phase following an explosive decade. In other words, momentum seekers might begin to seek explosive runs in other areas.
Gold [$1274] – Slowly but clearly, making all-time highs. Positive momentum remains intact as the index is over 9% above its 200 day moving average.
DXY– US Dollar Index [81.39] – Stands 15% higher than lows set in March 2008. Yet it feels like we’ve been in a similar range for several years. The 15 month moving average stands near 80.
US 10 Year Treasury Yields [2.73%] – Early form of stability in yields following the summer lows on August 25, 2010. Now, it’s flirting few points below its 50 day moving average of 2.78%.
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, September 13, 2010
Market Outlook | September 13, 2010
“The paradox of reality is that no image is as compelling as the one which exists only in the mind's eye.” - Shana Alexander
Risk aversion in early days of September should not serve as a shock to most. Clearly, in this jittery period, this early fall is bound to see various mixed feelings when it comes to confidence. That’s been the general market feel at a quick glance. Those chasing strong performance appear stuck, given the limited, relative opportunities. In other words, this might explain the rush to own Gold and instruments linked to fixed income. A Bloomberg article puts the herding mentality in perspective: “Investors poured $480.2 billion into mutual funds that focus on debt in the two years ending June, compared with the $496.9 billion received by equity funds from 1999 to 2000..." Basically, recent outperformance of “safer assets” demonstrates the lack of willingness to wait for hopeful returns and less enthusiasm in making bets in innovation ideas. Instead, the attention has increasingly shifted towards Federal Reserve polices and other legislative implications. Importantly, the low interest rate environment is a dominant theme and increased borrowing by US and European companies. That said, the current climate presents unique features, and veterans in financial services will have to make adjustments to adapt. And that’s yet another challenge in this puzzle.
In the past few weeks, the collective investor mindset signals complacency and less eagerness to speculate. The S&P 500 Index is slowly climbing back to erase negative returns for 2010, and strength in the US Dollar significantly evaporated this summer. Both indicators point out the neutral-like market reaction, but they also warn of potential surprises ahead. Meanwhile, some money managers will take this time to wait and seek value at a cheaper cost. Clearly, seasonal changes and mid-term elections are one of the few things that create some hopes for sentiment shift. Meanwhile, for lawmakers, there are plenty of issues to address, from tax implication to further reforms in financial regulations. The suspense mostly resides in the government’s ability to solve issues tied to debt management. For investors, forecasting various possibilities for the ever-so-growing rules and regulations can be a daunting task. The points above add some color to the decreasing market activity and less upbeat feel for risk-taking.
Food related themes showcase some bright spots. In general, a neutral to down market has not stopped some US restaurants. For example, PF Chang’s (PFCB) is up 234% since 2008, at the lowest point of markets. Similarly, Panera Bread (PNRA) is up 189% since January 2008, and it is one of the few companies that kept a solid uptrend since the broad market crisis. Interestingly, the success for Panera is due to low debt, and it showcases that markets find a way to reward quality companies regardless of macroeconomic worries. Similarly, stocks in technology, such as Skyworks (SWKS) and Broadcom (BRCM) are trading near multi-month highs and showcasing sustainable upside moves. At least, this is a positive reflection in rebuilding confidence for those looking to make long-term picks.
Article Quotes:
“Take federal employees. For nine years in a row, they have been awarded bigger average pay and benefit increases than private-sector workers. In 2008, the average wage for 1.9m federal civilian workers was more than $79,000, against an average of about $50,000 for the nation’s 108m private-sector workers, measured in full-time equivalents. Ninety per cent of government employees receive lifetime pension benefits versus 18 per cent of private employees. Public service employees continue to gain annual salary increases; they retire earlier with instant, guaranteed benefits paid for with the taxes of those very same private-sector workers.” (Financial Times, September 9, 2010)
“The ethical implications of an increasingly stressed global food chain are complex. For example, a number of countries, such as China, South Korea, and Saudi Arabia, have been actively buying up significant tracts of foreign farmland ….Farmland investments in Africa, Asia and Latin America are estimated already to be the equivalent of half the size of Italy. Armajaro, the hedge fund, recently put itself under the spotlight by cornering a significant slice of the world's cocoa market with a purchase of 240,000 tonnes of the physical commodity - the biggest such trade in 14 years.” (Telegraph, September 11, 2010)
Levels:
S&P 500 Index [1109.55] – Approaching a key 1120 level, which has been a near-term hurdle that’s difficult to overcome. The index closed at the higher end of key range between 1040 and 1020. Also, with S&P 500 a few points below the 200-day moving average of 1115.63; it can create some response from short-term traders.
Crude [$76.45] – Attempting to bottom for the third time since spring’s sharp correction. Interestingly, buyer showcased interest when Crude prices reached or fell below $72.
Gold [$1246.50] – Early signs of stalling in the short-term after yet another explosive run since July 2010. June 28th highs of 1261 are a key target to confirm the ongoing strength. Interestingly, long-term investors may continue to be comfortable anywhere above 1200.
DXY– US Dollar Index [82.69] – Maintaining dull-like pattern in the past several weeks. After a mid-summer depreciation, the US Dollar Index is lacking major movement.
US 10 Year Treasury Yields [2.79%] – After reaching annual lows of 2.41%, rates showed an explosive and noticeable mean-reversion in the past few days. Perhaps, the late August decline in rates was an overreaction and defined a clue to where rates might hold.
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.
Risk aversion in early days of September should not serve as a shock to most. Clearly, in this jittery period, this early fall is bound to see various mixed feelings when it comes to confidence. That’s been the general market feel at a quick glance. Those chasing strong performance appear stuck, given the limited, relative opportunities. In other words, this might explain the rush to own Gold and instruments linked to fixed income. A Bloomberg article puts the herding mentality in perspective: “Investors poured $480.2 billion into mutual funds that focus on debt in the two years ending June, compared with the $496.9 billion received by equity funds from 1999 to 2000..." Basically, recent outperformance of “safer assets” demonstrates the lack of willingness to wait for hopeful returns and less enthusiasm in making bets in innovation ideas. Instead, the attention has increasingly shifted towards Federal Reserve polices and other legislative implications. Importantly, the low interest rate environment is a dominant theme and increased borrowing by US and European companies. That said, the current climate presents unique features, and veterans in financial services will have to make adjustments to adapt. And that’s yet another challenge in this puzzle.
In the past few weeks, the collective investor mindset signals complacency and less eagerness to speculate. The S&P 500 Index is slowly climbing back to erase negative returns for 2010, and strength in the US Dollar significantly evaporated this summer. Both indicators point out the neutral-like market reaction, but they also warn of potential surprises ahead. Meanwhile, some money managers will take this time to wait and seek value at a cheaper cost. Clearly, seasonal changes and mid-term elections are one of the few things that create some hopes for sentiment shift. Meanwhile, for lawmakers, there are plenty of issues to address, from tax implication to further reforms in financial regulations. The suspense mostly resides in the government’s ability to solve issues tied to debt management. For investors, forecasting various possibilities for the ever-so-growing rules and regulations can be a daunting task. The points above add some color to the decreasing market activity and less upbeat feel for risk-taking.
Food related themes showcase some bright spots. In general, a neutral to down market has not stopped some US restaurants. For example, PF Chang’s (PFCB) is up 234% since 2008, at the lowest point of markets. Similarly, Panera Bread (PNRA) is up 189% since January 2008, and it is one of the few companies that kept a solid uptrend since the broad market crisis. Interestingly, the success for Panera is due to low debt, and it showcases that markets find a way to reward quality companies regardless of macroeconomic worries. Similarly, stocks in technology, such as Skyworks (SWKS) and Broadcom (BRCM) are trading near multi-month highs and showcasing sustainable upside moves. At least, this is a positive reflection in rebuilding confidence for those looking to make long-term picks.
Article Quotes:
“Take federal employees. For nine years in a row, they have been awarded bigger average pay and benefit increases than private-sector workers. In 2008, the average wage for 1.9m federal civilian workers was more than $79,000, against an average of about $50,000 for the nation’s 108m private-sector workers, measured in full-time equivalents. Ninety per cent of government employees receive lifetime pension benefits versus 18 per cent of private employees. Public service employees continue to gain annual salary increases; they retire earlier with instant, guaranteed benefits paid for with the taxes of those very same private-sector workers.” (Financial Times, September 9, 2010)
“The ethical implications of an increasingly stressed global food chain are complex. For example, a number of countries, such as China, South Korea, and Saudi Arabia, have been actively buying up significant tracts of foreign farmland ….Farmland investments in Africa, Asia and Latin America are estimated already to be the equivalent of half the size of Italy. Armajaro, the hedge fund, recently put itself under the spotlight by cornering a significant slice of the world's cocoa market with a purchase of 240,000 tonnes of the physical commodity - the biggest such trade in 14 years.” (Telegraph, September 11, 2010)
Levels:
S&P 500 Index [1109.55] – Approaching a key 1120 level, which has been a near-term hurdle that’s difficult to overcome. The index closed at the higher end of key range between 1040 and 1020. Also, with S&P 500 a few points below the 200-day moving average of 1115.63; it can create some response from short-term traders.
Crude [$76.45] – Attempting to bottom for the third time since spring’s sharp correction. Interestingly, buyer showcased interest when Crude prices reached or fell below $72.
Gold [$1246.50] – Early signs of stalling in the short-term after yet another explosive run since July 2010. June 28th highs of 1261 are a key target to confirm the ongoing strength. Interestingly, long-term investors may continue to be comfortable anywhere above 1200.
DXY– US Dollar Index [82.69] – Maintaining dull-like pattern in the past several weeks. After a mid-summer depreciation, the US Dollar Index is lacking major movement.
US 10 Year Treasury Yields [2.79%] – After reaching annual lows of 2.41%, rates showed an explosive and noticeable mean-reversion in the past few days. Perhaps, the late August decline in rates was an overreaction and defined a clue to where rates might hold.
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.
Tuesday, September 07, 2010
Market Outlook | September 7, 2010
“Live each season as it passes; breathe the air, drink the drink, taste the fruit, and resign yourself to the influences of each.” - Henry David Thoreau
Spring’s Fall
Like most Americans, this writer, as well, took a break from market action in the last two weeks of August leading up to Labor Day. Upon returning, one notices how big picture themes reaffirm ongoing themes. To start, there is a great emphasis placed on the mid-spring 2010 trend break, which triggered lower global investor confidence. Simply, the noise surrounding government lawsuits and financial regulations began the sell-off - not to mention, the panic-like response to credit conditions of select European markets. The attention and mild obsession of these events turned to political drama, which occupied more attention than the actual pursuit of growth and innovative opportunities. The rest is explained by lackluster volume and a significant decline in volatility as a sign of most participants’ willingness to await the next chapter.
Interestingly, financial markets, combined with participant emotions, set the tone within a particular season. In other words, seasonal factors should not be easily dismissed when it comes to investor mindset. For instance, the late April 2010 peak showcased downtrend in US stocks and further declines in interest rates. In the meantime, Gold’s 78% rise, since winter 2008, is relatively noticeable and demonstrates the comfort of investors for the commodity in nearly all seasons. Meanwhile, the glaring message pointed to a shift away from risk taking and a general need of “confidence restoration”. At least that's a simple overview and a quick summary of the current barometer.
Autumn’s Hope
A dose of optimism emerged last week with a recovery in equity markets along with stabilization of interest rates. Maybe some of the price appreciation in stocks can be explained by the appeal of the S&P 500 Index being at a 1040 range. Importantly, heading into the fall, a change in sentiment sets up an opportunity to make big cycle bets, especially for those daring optimists. Maybe this mild recovery revolves around the potential of a market shake up as result of elections. Yet, veterans know too well that investment views should be expressed way ahead of a much anticipated event. Some influencers of financial services maintain a strong view that argues against excess regulation with the goal of not deflating sentiment. True or not, mere perception will have a lot to say in the weeks ahead. A few points higher in broad indexes can spark additional momentum. Plus, labor data, combined with increased shipping activity, can stir some early confirmation. Importantly, money managers are challenged in finding differentiated ideas while adjusting for surprise elements.
Article Quotes:
“The S&P 500 is up a little more than 5% over the last 3 days… Unsurprisingly, the sectors that were down the most during the pullback are up the most during the rally. Industrials, Financials, and Technology got hit the hardest in the back half of August, and they have bounced quite a bit this week. Consumer Discretionary is the one sector that outperformed (slightly) during the pullback and is also outperforming over the last three days. The defensives -- Consumer Staples, Utilities, and Telecom -- all held up well as the market fell in August, but they're only up modestly on the bounce.” (Bespoke, September 3, 2010)
“Perhaps the explanation is found in currency movements. One effect of the euro-area crisis was to push the euro down against the dollar in the early months of this year—helping German firms but harming American exporters. Much of Germany’s second-quarter GDP growth came from trade, even as a wider trade gap sapped America’s economy. A weak pound could also explain Britain’s renewed economic strength, much as a surge in the yen has increased worries about Japan. On August 30th Japan’s central bank said it would offer banks ¥10 trillion ($118 billion) of six-month secured loans at its benchmark interest rate of 0.1%, on top of the ¥20 trillion of three-month loans it had already pledged.” (Economist, September 2, 2010)
Levels:
S&P 500 Index [1104.51] – For the fifth time this year, the index has recovered when reaching at, near, or below 1040. Yet, twice this summer, overcoming the hurdle of 1120 has a challenge request to ask buyers. Now, with a breath of fresh air, the optimistic quest might have reignited at the August 27th lows of 1039.
Crude [$74.60] – Attempting to recover from summer lows. Next upside level stands near $78 range as the 200-day moving average stands at $77.51. Range bound over the past 12 months showcases the neutral stage of the multi-year cycle.
Gold [$1240.50] – In the near-term, Gold price’s ability to climb back to annual highs 1261, will be closely watched by participants. The commodity is up 25.36% since lows of September 2009.
DXY– US Dollar Index [83.10] – Within the longer-term downtrend, a bottoming process is forming between $81-83. Once again, the 15-month moving average is near 80, which suggests that despite all recovery hopes and downside moves, the last few years have yet to see a dramatic shift.
US 10 Year Treasury Yields [2.69%] – The last time yields reached below 2.50% was around late 2008. Once again, at these levels, investors continue to wonder if this marks the lows.
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.
Spring’s Fall
Like most Americans, this writer, as well, took a break from market action in the last two weeks of August leading up to Labor Day. Upon returning, one notices how big picture themes reaffirm ongoing themes. To start, there is a great emphasis placed on the mid-spring 2010 trend break, which triggered lower global investor confidence. Simply, the noise surrounding government lawsuits and financial regulations began the sell-off - not to mention, the panic-like response to credit conditions of select European markets. The attention and mild obsession of these events turned to political drama, which occupied more attention than the actual pursuit of growth and innovative opportunities. The rest is explained by lackluster volume and a significant decline in volatility as a sign of most participants’ willingness to await the next chapter.
Interestingly, financial markets, combined with participant emotions, set the tone within a particular season. In other words, seasonal factors should not be easily dismissed when it comes to investor mindset. For instance, the late April 2010 peak showcased downtrend in US stocks and further declines in interest rates. In the meantime, Gold’s 78% rise, since winter 2008, is relatively noticeable and demonstrates the comfort of investors for the commodity in nearly all seasons. Meanwhile, the glaring message pointed to a shift away from risk taking and a general need of “confidence restoration”. At least that's a simple overview and a quick summary of the current barometer.
Autumn’s Hope
A dose of optimism emerged last week with a recovery in equity markets along with stabilization of interest rates. Maybe some of the price appreciation in stocks can be explained by the appeal of the S&P 500 Index being at a 1040 range. Importantly, heading into the fall, a change in sentiment sets up an opportunity to make big cycle bets, especially for those daring optimists. Maybe this mild recovery revolves around the potential of a market shake up as result of elections. Yet, veterans know too well that investment views should be expressed way ahead of a much anticipated event. Some influencers of financial services maintain a strong view that argues against excess regulation with the goal of not deflating sentiment. True or not, mere perception will have a lot to say in the weeks ahead. A few points higher in broad indexes can spark additional momentum. Plus, labor data, combined with increased shipping activity, can stir some early confirmation. Importantly, money managers are challenged in finding differentiated ideas while adjusting for surprise elements.
Article Quotes:
“The S&P 500 is up a little more than 5% over the last 3 days… Unsurprisingly, the sectors that were down the most during the pullback are up the most during the rally. Industrials, Financials, and Technology got hit the hardest in the back half of August, and they have bounced quite a bit this week. Consumer Discretionary is the one sector that outperformed (slightly) during the pullback and is also outperforming over the last three days. The defensives -- Consumer Staples, Utilities, and Telecom -- all held up well as the market fell in August, but they're only up modestly on the bounce.” (Bespoke, September 3, 2010)
“Perhaps the explanation is found in currency movements. One effect of the euro-area crisis was to push the euro down against the dollar in the early months of this year—helping German firms but harming American exporters. Much of Germany’s second-quarter GDP growth came from trade, even as a wider trade gap sapped America’s economy. A weak pound could also explain Britain’s renewed economic strength, much as a surge in the yen has increased worries about Japan. On August 30th Japan’s central bank said it would offer banks ¥10 trillion ($118 billion) of six-month secured loans at its benchmark interest rate of 0.1%, on top of the ¥20 trillion of three-month loans it had already pledged.” (Economist, September 2, 2010)
Levels:
S&P 500 Index [1104.51] – For the fifth time this year, the index has recovered when reaching at, near, or below 1040. Yet, twice this summer, overcoming the hurdle of 1120 has a challenge request to ask buyers. Now, with a breath of fresh air, the optimistic quest might have reignited at the August 27th lows of 1039.
Crude [$74.60] – Attempting to recover from summer lows. Next upside level stands near $78 range as the 200-day moving average stands at $77.51. Range bound over the past 12 months showcases the neutral stage of the multi-year cycle.
Gold [$1240.50] – In the near-term, Gold price’s ability to climb back to annual highs 1261, will be closely watched by participants. The commodity is up 25.36% since lows of September 2009.
DXY– US Dollar Index [83.10] – Within the longer-term downtrend, a bottoming process is forming between $81-83. Once again, the 15-month moving average is near 80, which suggests that despite all recovery hopes and downside moves, the last few years have yet to see a dramatic shift.
US 10 Year Treasury Yields [2.69%] – The last time yields reached below 2.50% was around late 2008. Once again, at these levels, investors continue to wonder if this marks the lows.
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, August 16, 2010
Market Outlook | August 16, 2010
“Truly successful decision making relies on a balance between deliberate and instinctive thinking.” - Malcolm Gladwell
Last week, the message from the Federal Reserve further triggered worries, along with other factors, that suddenly shifted the calmness of volatility. Yet, glaringly, interest rates continued to decline, even lower than the much discussed 3% on the US 10 Year Yield. The negative stock market tone was supported by a weekly decline of nearly 4% in the S&P 500 Index. Basically, this shakes up the overall comfort zone, while emphasizing the lack of sustainability of early July’s buy signals. Over the halfway point of the year, broad indexes are showcasing negative annual returns, which, as usual, raise the stakes for outside observers. In other words, the concept of purchasing at current prices is less enticing and continues to lose its appeal, at least, momentarily.
Dilemma of Buyers
Earnings season usually causes a sensitive response, since company specific results are scrutinized at a higher level. In addition, technical indicators are suggesting that some areas are overpriced, while other momentum clues provide a sell signal. Perhaps, this contributes to a mentality of waiting until election time to buy shares at possibly lower prices. Interestingly, the moods of investors in the next few days can provide analysts withthe overall magnitude of resurfacing fright. Interestingly, even contrarians need heightened fear to take the brave approach of buying, while the panic sets in. Perhaps, we’re at a confusing state, where real economy data, fundamental business cycle, and psychology are pointing in a similar direction.
Investors Challenge
Money managers now face the challenge of finding asset classes, or company specific stocks, in hopes of gearing up for the next four months. That includes a traditionally turbulent month of September, ahead of mid-term elections. In addition, earnings results seem less likely to produce collective upside surprises. As we’ve seen over the years, catching surprises is where big turnaround bet becomes highly rewarding. However, at this phase, those actively involved in markets will have the challenge of seeking returns in sideways pattern while staying loose to hedge undesired, or less expected, moves. That, in itself, sounds reasonable at first, but it can become hard to execute. At least, conviction levels will be tested, keeping market participants more enthused.
A Balancing Act
Those accustomed to trend-following, from previous years, have to accept the growing importance of understanding government policies in the investment decision making process. Veteran participants are forced to readjust to those lessons, especially in the past two years. Of course, this is highlighted by the GM IPO, which is bound to cause political, financial, and social reactions. This public offering is a symbol of the continuation of bailout plans, and it sends a bigger message of the required adjustment in the current era.
Clearly, trend following alone is not the sole answer for outperformance. And this year has taught us that one has to isolate ideas to specific regions, companies, or concepts. Yet, investing in a relatively narrow idea creates liquidity issues in hopes of attaining higher return. For example, according to EPFR, “Funds investing in emerging-market local-currency debt have attracted $16.9 billion of net inflows so far, more than triple the record annual intake of $5 billion recorded in 2007” (Bloomberg, August 13, 2010). This reconfirms recent strength in specific emerging markets as seen by the strength of Chile, Turkey, and South Africa. Again, there is a balance between seeking huge returns and investing in relatively liquid instruments. The art of balancing the two is the goal of wise managers. Importantly, high conviction ideas seem to be always required, rather than going with the flow, as witnessed in several previous cycles.
At the same time, larger participants are desperately seeking higher yields, which naturally weigh heavily on influencing market response, and it changes the complication of the investing game. Perhaps, this explains why, “Hedge fund managers now account for a fifth of all trading volume in the $10,000bn US Treasury bond market” (Financial Times, August 11, 2010).
Levels:
S&P 500 Index [1079.25] failed to hold above 1120, and it fell even below the other key level of 1100.
Crude [$75.39] had a recent short-term rally near $83, which failed to attract buyers. Currently, it is in a sharp decline mode, yet odds are increasingly favorable to hold between $72 and $74 ranges. There is a strong possibility that the strengthening of the dollar contributed to declining crude prices.
Gold [$1214] is trading slightly above the 50-day moving average, which showcases that the commodity is trading in-line within a defined pattern.
DXY– US Dollar Index [82.94], this month, suggests an early rebound from the summer’s deceleration. However, the weekly recovery is not convincing of a sustainable rally.
US 10 Year Treasury Yields [2.67%] showed a 33% decline in rates after topping on April 5, 2010. Last Friday, it marked the lows for the year. Questions are expected at the next stop around 2.50%. To put some perspective, reaching near 2.50% was last witnessed during the height of the credit crisis of fall 2008.
Article Quotes
“True, central banks talk to a lot of practitioners in the financial markets and the real economy and have a good insight into the short-term money markets from their own operations. But beyond that, they are usually working off the same numbers as everyone else. Yet in times of great uncertainty, investors will cling on to anything they can to form a view about the economy, including assuming the Fed knows more than they do….. There is no such obvious disagreement between government and central bank in the US. But divisions elsewhere are destroying the coherence of fiscal policy. A stimulus-phobic Congress is blocking the White House. And with the recent departures of senior officials Peter Orszag and Christy Romer, there are signs of division and exhaustion within the administration’s economics team.” (Financial Times, August 13, 2010)
"Korea Teachers Pension, the nation's second-largest public pension fund, favors bonds and stocks of Brazil, China, Indonesia, and Malaysia over developed countries because their economies are expanding faster. 'We may invest more there,' Chief Investment Officer Lee Yun Kyu, who oversees 8.3 trillion won ($7.1 billion), said... 'Emerging nations, relatively free from the sovereign debt crisis, will be in good shape.’” (Bloomberg, August 11, 2010)
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.
Last week, the message from the Federal Reserve further triggered worries, along with other factors, that suddenly shifted the calmness of volatility. Yet, glaringly, interest rates continued to decline, even lower than the much discussed 3% on the US 10 Year Yield. The negative stock market tone was supported by a weekly decline of nearly 4% in the S&P 500 Index. Basically, this shakes up the overall comfort zone, while emphasizing the lack of sustainability of early July’s buy signals. Over the halfway point of the year, broad indexes are showcasing negative annual returns, which, as usual, raise the stakes for outside observers. In other words, the concept of purchasing at current prices is less enticing and continues to lose its appeal, at least, momentarily.
Dilemma of Buyers
Earnings season usually causes a sensitive response, since company specific results are scrutinized at a higher level. In addition, technical indicators are suggesting that some areas are overpriced, while other momentum clues provide a sell signal. Perhaps, this contributes to a mentality of waiting until election time to buy shares at possibly lower prices. Interestingly, the moods of investors in the next few days can provide analysts withthe overall magnitude of resurfacing fright. Interestingly, even contrarians need heightened fear to take the brave approach of buying, while the panic sets in. Perhaps, we’re at a confusing state, where real economy data, fundamental business cycle, and psychology are pointing in a similar direction.
Investors Challenge
Money managers now face the challenge of finding asset classes, or company specific stocks, in hopes of gearing up for the next four months. That includes a traditionally turbulent month of September, ahead of mid-term elections. In addition, earnings results seem less likely to produce collective upside surprises. As we’ve seen over the years, catching surprises is where big turnaround bet becomes highly rewarding. However, at this phase, those actively involved in markets will have the challenge of seeking returns in sideways pattern while staying loose to hedge undesired, or less expected, moves. That, in itself, sounds reasonable at first, but it can become hard to execute. At least, conviction levels will be tested, keeping market participants more enthused.
A Balancing Act
Those accustomed to trend-following, from previous years, have to accept the growing importance of understanding government policies in the investment decision making process. Veteran participants are forced to readjust to those lessons, especially in the past two years. Of course, this is highlighted by the GM IPO, which is bound to cause political, financial, and social reactions. This public offering is a symbol of the continuation of bailout plans, and it sends a bigger message of the required adjustment in the current era.
Clearly, trend following alone is not the sole answer for outperformance. And this year has taught us that one has to isolate ideas to specific regions, companies, or concepts. Yet, investing in a relatively narrow idea creates liquidity issues in hopes of attaining higher return. For example, according to EPFR, “Funds investing in emerging-market local-currency debt have attracted $16.9 billion of net inflows so far, more than triple the record annual intake of $5 billion recorded in 2007” (Bloomberg, August 13, 2010). This reconfirms recent strength in specific emerging markets as seen by the strength of Chile, Turkey, and South Africa. Again, there is a balance between seeking huge returns and investing in relatively liquid instruments. The art of balancing the two is the goal of wise managers. Importantly, high conviction ideas seem to be always required, rather than going with the flow, as witnessed in several previous cycles.
At the same time, larger participants are desperately seeking higher yields, which naturally weigh heavily on influencing market response, and it changes the complication of the investing game. Perhaps, this explains why, “Hedge fund managers now account for a fifth of all trading volume in the $10,000bn US Treasury bond market” (Financial Times, August 11, 2010).
Levels:
S&P 500 Index [1079.25] failed to hold above 1120, and it fell even below the other key level of 1100.
Crude [$75.39] had a recent short-term rally near $83, which failed to attract buyers. Currently, it is in a sharp decline mode, yet odds are increasingly favorable to hold between $72 and $74 ranges. There is a strong possibility that the strengthening of the dollar contributed to declining crude prices.
Gold [$1214] is trading slightly above the 50-day moving average, which showcases that the commodity is trading in-line within a defined pattern.
DXY– US Dollar Index [82.94], this month, suggests an early rebound from the summer’s deceleration. However, the weekly recovery is not convincing of a sustainable rally.
US 10 Year Treasury Yields [2.67%] showed a 33% decline in rates after topping on April 5, 2010. Last Friday, it marked the lows for the year. Questions are expected at the next stop around 2.50%. To put some perspective, reaching near 2.50% was last witnessed during the height of the credit crisis of fall 2008.
Article Quotes
“True, central banks talk to a lot of practitioners in the financial markets and the real economy and have a good insight into the short-term money markets from their own operations. But beyond that, they are usually working off the same numbers as everyone else. Yet in times of great uncertainty, investors will cling on to anything they can to form a view about the economy, including assuming the Fed knows more than they do….. There is no such obvious disagreement between government and central bank in the US. But divisions elsewhere are destroying the coherence of fiscal policy. A stimulus-phobic Congress is blocking the White House. And with the recent departures of senior officials Peter Orszag and Christy Romer, there are signs of division and exhaustion within the administration’s economics team.” (Financial Times, August 13, 2010)
"Korea Teachers Pension, the nation's second-largest public pension fund, favors bonds and stocks of Brazil, China, Indonesia, and Malaysia over developed countries because their economies are expanding faster. 'We may invest more there,' Chief Investment Officer Lee Yun Kyu, who oversees 8.3 trillion won ($7.1 billion), said... 'Emerging nations, relatively free from the sovereign debt crisis, will be in good shape.’” (Bloomberg, August 11, 2010)
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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