“Confusion is a word we have invented for an order which is not yet understood.” (Henry Miller, 1891-1980)
Stalled in transition
Broadly speaking, for those looking to bet on the direction of stock indexes, it is not quite a clear-cut entry point. If you sense others are too fearful, then the contrarian view has some appeal, at least at first glance. In other words, why not buy in a fear-obsessed and not-so-cheerful environment? However, dissecting that thought leads one to simple arithmetic, which shows the S&P 500 index trading closer to the highs of 2007 than the lows of late 2008. Basically, we are not even close to a “collapsing” market, at least in terms of pricing. If you're a fundamental observer, then the corporate earnings growth makes one relatively optimistic. Yet, it has been an impressive trend for a while and this impressive run is bound to stall, from odds makers’ perspectives. Plus, value investors cannot claim things are too cheap for comfort, either. A conundrum, indeed.
Based on day-to-day anxiousness, one can easily state that volatility is very high, but the answer to that intuitive thought is simply: No. Actually, the truth is to the contrary: Perceived turbulence has declined significantly for several months in a calming manner, along with a slowing participation rate. This combination showcases the much-discussed growing disinterest in or temporary pause from risk-taking. However, barometers indicate we are far removed from any extreme panic. Not to mention last week’s trading glitch, which does not boost the confidence of the financial system, especially after the “flash crash” which only lets the commoner conclude that this market is too complex and highly vulnerable. Yet, as we’ve learned, like all crises, a solution follows despite debates and opinions.
Re-grouping
Emerging markets have boasted long-term cycle returns dating back to turn of the last decade. During that period, those runs were rewarding for investors and select countries’ GDP growth. Now, both investment themes have slowed, while cooling the excitement and momentum run. In looking ahead, many observers have asked, when is growth resuming in emerging markets? Some may view that turnaround point as sooner than others. Yet, most point out that the long-term prospects are what keep optimists alive in the short-term. For example, “Leading companies in the developed world earn just 17% of total revenues from emerging markets, even though these markets represent 36% of global GDP.” (McKinsey Quarterly, August 2012). Certainly, the long-term trend in emerging countries cannot be neglected, but timing the nature of the re-acceleration is tricky. Plus, identifying nations beyond the BRIC’s is a puzzle worth pursuing. That’s where patience may be rewarding, while a dose of healthy skepticism in future projections is worth a closer look.
Unanswerable – for now
Questions related to job growth, the success of quantitative easing and stabilization of the Eurozone are too big and difficult to answer for anyone. Time after time, these noisy macro issues engulf the minds of large and small investors. Basically, trying to predict the outcome of these issues may lead to more mistakes than accurate stock or commodity picking. Perhaps, investor frustration deals with the extra work needed to adjust to a new cycle with varying dynamics related to speedy information and increased competition. While it’s certainly not for the casual observer, to claim “buy and hold” is dead would be grossly misleading, as well. After all, since July 2010, the S&P 500 index is up nearly 38% despite the back-and-forth unknowns. Thus, focusing on big-picture answers to determine entry points is not unique and definitely not certain, either.
Article Quotes:
“The most dramatic signs of a US revival are in manufacturing. Even as it was losing out to emerging manufacturing powers in the last decade, the US was reacting much more quickly than other rich nations, by restraining wage growth, boosting the productivity of remaining workers with new technology, allowing a steady fall in the dollar that has made US exports much more competitive, particularly relative to Euro nations, and incorporating inexpensive new foreign sources into its supply chains. The result was that China's rise came largely at Europe's expense. Since 2004 China has gained market share in the export of goods and of manufactured goods, while Europe's share is falling and the US share has held steady. After losing 6 million manufacturing jobs in the last decade, the US gained half a million in the last 18 months while Europe, Canada and Japan lost jobs or saw no change. … Energy is also rapidly emerging as an American competitive advantage. After falling for 25 years, the share of the US energy supply that comes from domestic sources has been rising since 2005, from 69 percent to around 80 percent, due to increasing production of oil and particularly natural gas.” (The Atlantic, August, 3 2012)
“It is not just America’s Treasury that is benefiting from ultra-low borrowing costs. On July 30th Unilever, an Anglo-Dutch consumer-goods group, borrowed $1 billion in the bond markets, in two tranches: 0.45% for three-year money and 0.85% over five years, both record lows for corporate debt. A week earlier IBM had raised ten-year money at a rate of just 1.875%. The Spanish and Italian governments can only dream of funding at such a low cost. Multinational companies have some advantages over governments. Although they can be subject to punitive taxation, they have the potential to move their operations to more welcoming jurisdictions. Their revenues are not dependent on the fortunes of an individual economy. And large companies have been able to strengthen their balance-sheets over the past five years, whereas governments have been forced deep into deficit to prop up their economies.” (The Economist, August 4, 2012)
Levels:
S&P 500 Index [1390.99] – Knocking on the door of 1400 and marching higher from the lows established on June 4, 2012. Trend remains positive despite neutral developing patterns.
Crude [$91.40] – Signs of bottoming visible at $84 as shown in recent weeks, and re-acceleration around $90.
Gold [$1602.00] – Over the last three months, gold has seen plenty of trendless action. For example, the 50-day moving average stands at $1592, illustrating the continued zig-zag and narrow movements around $1600.
DXY – US Dollar Index [82.70] – For over a year, the dollar index has shown signs of strengthening. However, the current strength doesn’t match the peak levels seen in late 2008 (88.46), early 2009 (89.62) and mid 2010 (88.70). Potential pause looming in the near-term.
US 10 Year Treasury Yields [1.54%] – It was last August when yields were closer to 3% before a profound drop. Then, April 2012 marked another defining point, where yields struggled to move above 2%. Now, tiptoeing around all-times lows seems more normal than outrageous.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, August 06, 2012
Monday, July 30, 2012
Market Outlook | July 30, 2012
“Your neighbor's vision is as true for him as your own vision is true for you.” Miguel de Unamuno (1864-1936)
Neutrality beloved
The notion of "wait and see" remains a common saying in casual investor talk. Summer days pass by with one crowd waiting for elections while others sit back, awaiting clarity on the latest job numbers and sustainability of corporate earnings. It’s fair to say: Observing is preferred over speculating on the revival of the fragile financial system. Most US technical forecasters appear to subscribe to “range-bound” movements. More or a less a dull pattern is anticipated as we continue to witness calmer volatility in stocks. This reflects the limited directional conviction for the next 2-3 years. To no one’s surprise, risk-aversion is deeply rooted and interlocked in the minds of market participants as measured by some sentiment barometers.
However, getting comfortable with too much observation and resorting to narrower views may lead to opportunities missed. Surely, there’s no denying of deflated moods and lack of motivation for risk taking. Yet, nearly an ideal setup exists for a patient investor – even more intriguing for the few overcoming the clogged up and fatigued chatter around fear. In between the ramblings, one may stumble on themes such as cyber security, infrastructure and deeply discounted emerging markets, which present an attractive entry point. Certainly, with notable macro-related announcements this week, one can expect emotionally based reactions, but separating facts from noise is the challenge ahead.
Digesting opinions
Emphasis on the various sovereign challenges will remain part of the daily banter. Most of the catalyst of shorter-term market movements is credited to the heads of central banks or policy influencers.
If Germany promoted herself as Europe's top economy, then the recent downgrade is a mild wakeup call to stir thought-provoking points. Does saving the Euro make Germany more risky? At least leaders know that stability by all means is desperately needed. Perhaps, rating agencies opinion is usually leads to shorted-lived responses. However, the recent "downgrade" of Germany and her banks finds a way to play more into the existing uncertainty mania. Last summer, markets quickly got over the much-hyped (debatable) US downgrade faster than imagined. History does not exactly repeat itself, but the notion of credit agencies setting the tone for the long term remains questionable. On the other hand, the results of rating agent opinions shape investors’ mindset. Perhaps the week ahead will present another clue as the ECB faces pressure to deliver decisions.
Soft commodities clues
Hard commodity supporters are puzzled and disappointed despite the increasing hopes of a trend reversal, which has yet to materialize. For example, gold is nearly unchanged for the year, and the long-awaited recovery struggles to find a noteworthy pace. Similarly, silver and copper remain in a downtrend. Yet, the commodity index (CRB) is showing very minor and early sings of bottoming that began in late June. It’s hardly a definitive or a clear trend, but the driver of this trend circulates around agricultural-related commodities, which remain in high demand. Food prices (mainly wheat and corn) serve as a macro-indicator for the tense global landscape. Beyond complicated currency or interest rate management, food prices can influence behaviors and stimulus options. Perhaps, political or market turbulence can trigger the outcome of soft commodity actions. The contrast in pattern between hard and soft commodities is a prevailing theme worth observing in the months ahead.
Article Quotes:
“After 25 years in business trying to do the right thing for our clients every day, after 25 years of never using leverage and sometimes holding significant cash, we still are forced to explain ourselves because what we do—which sounds so incredibly simple—is seen as so very odd. When so many others lose their heads, speculating rather than investing, riding the market’s momentum regardless of valuation, embracing unconscionable amounts of leverage, betting that what hasn’t happened before won’t ever happen, and trusting computer models that greatly oversimplify the real world, there is constant and enormous pressure to capitulate. Clients, of course, want it both ways, too, in this what-have-you-done-for-me-lately world. They want to make lots of money when everyone else is, and to not lose money when the market goes down. Who is going to tell them that these desires are essentially in conflict, and that those who promise them the former are almost certainly not those who can deliver the latter? The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions. Success in the market leads to excess, as bystanders are lured in by observing their friends and neighbors becoming rich, as naysayers are trounced by zealous participants, and as the effects of leverage reinforce early successes.” (Seth Klarman, October 20, 2007)
“But there are more exotic methods that can push interest rates below zero. Lars Svensson, vice governor of Sweden’s Riksbank and a former Princeton colleague of Ben Bernanke, in 2009 implemented a negative interest rate on bank reserves of 0.25 percent. What that means, in plain English, is that banks had to pay 0.25 percent of the principal they parked at the central bank. Because the banks can’t keep their reserves in cash, they couldn’t just pull them out and avoid the penalty. The result was the strongest recovery in Europe. There are other ways to achieve negative interest rates. Mankiw has jokingly suggested invalidating all physical currency whose serial number ends with a certain digit. If every $1, $5, $10 etc. bill with a serial number ending in 7 were declared invalid, 10 percent of all paper money would be worthless — or, in other words, there’d be a negative interest rate on cash of 10 percent. Willem Buiter, formerly of the London School of Economics and currently of Citigroup, has proposed abolishing paper currency altogether. If all the money is in bank accounts, after all, the Fed can just shave off a certain percentage every so often. This is harder to do with paper money, absent a scheme like Mankiw’s serial number idea.” (Washington Post, July 25, 2012)
Levels:
S&P 500 Index [1385.97] – Choppy trading pattern in last few weeks. Closing above 1380 is encouraging despite the murky sentiment. June 4th lows of 1266 mark a key inflection point for now.
Crude [$90.13] – Attempting to hold above $90. Buyers have shown significant interest when prices traded around $84. Early signs of bottoming, however, increased skepticism around the $98 range.
Gold [$1618.00] – Seen in a range in the past three months between $1560-$1620. Now, an ultimate test for buyers’ conviction is here, during the climb back up to $1700.
DXY – US Dollar Index [82.70] – Climbed and peaked at 84, as last seen in the summer of 2010. Near-term pause is too early to declare a trend shift.
US 10 Year Treasury Yields [1.54%] – Trapped in a narrow range between 1.40-1.60%. while attempting to stabilize around all-time 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, July 23, 2012
Market Outlook | July 23, 2012
“A good traveler has no fixed plans, and is not intent on arriving.” Lao Tzu (600 BC-531 BC)
Observers are wondering why the market is not deteriorating at a faster pace. Is it the buzz of potential further easing (i.e. QE3) or the fact that corporate earnings were not as bad as expected that’s keeping stock markets higher? Investors who succeed within the rules usually know to trade what they are given, so patience may not hurt for those willing to adjust. However, risk-aversion persists in many and fatigued observers continue to recognize that it takes a while to dust off.
The rate journey:
Central banks’ master plan of lowering rates with the intention of increasing inflation expectations remains the ultimate hopes for stimulating growth. These efforts remain more suspenseful than usual, especially when growth is on the decline and cash remains on the sidelines. Perhaps, it is natural to worry and ask the following: Is there enough collective patience with the current central bankers’ plan? Certainly, we keep learning this is not an easy sales pitch. Even in some cases, the Federal Reserve is deferring to politicians to take action:
“The most effective way that the Congress could help to support the economy right now would be to work to address the nation's fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery.” (Chairman Ben S. Bernanke, July 17, 2012).
Rather a bold statement that is not pleasing to hear from the Federal Reserve. Yet again this summer, governance risk is at the forefront for money managers to dissect and ponder. In simple terms, pleading for leaders to make decisions for the health of competitive markets is not quite comforting. In some aspects, this fails to project broader confidence, even for the not-so-savvy financial observer. Basically, this alludes to the fragile state of markets, as stated by various indicators last quarter.
Marketing Risk
Perhaps, the vital capital that is too distant from flowing in the traditional economy is getting much more attention these days:
“A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore – as much as the American and Japanese GDPs put together – according to research commissioned by the campaign group Tax Justice Network.” (The Guardian, July 21, 2012)
Clearly, anyone labeled “ultra-rich” may not see the need to risk capital given the chaotic nature of sentiment. Perhaps, taxes present more of a priority than risk for some groups. Interestingly, even the typical retail account is lowering exposure to stock markets based on weaker volume. On a similar note, S&P 500 companies are holding cash while struggling to move it toward growth-based investments as an ongoing trend. On this topic, the Financial Times points out: “It continues to be depressingly obvious that corporates cannot find anything very exciting on which to spend their money.” (John Authers, July 22, 2012).
Thus, by various measures, it is quite visible regardless of wealth amount or decision-making role that the current deadlock is “trust” based. Bailouts and interventions are a global theme, not a geographic occurrence, and unknown tax consequences and unpredictable government mindsets even fuel the level of discomfort for participants. Yet, the reward for risks taken now is shaping up nicely for those willing to bet on unknowns. However, it takes courage and vision to ignore the much-discussed concerns.
Rerouting
In the last decade, financial engineering such as derivative products have been in great favor versus real investments in core economies. Perhaps, innovation that was heavily saturated in financial services can shift to other areas, such as manufacturing or innovation-based sectors. However, a globalized world makes this thought semi-nostalgic, and political constraints make it harder to envision. But it’s a necessity by all accounts to reenergize growth to entice capital activity.
Technology, as a known innovative sector, is showing relative strength despite a cloudy macro outlook. The successful IPOs of Kayak and Palo Alto Networks last week should not go unnoticed. Plus, the Semiconductor index is at the early stages of showing signs of bottoming, along with fundamentals that turned out not as dismal as previously thought (or desired). Surely, picking the right company’s stock is more appropriate in the sector, but requires further digging as entry points remain attractive for months ahead.
Article Quotes
“These events of the past five years have put the aging, close to retirement – or already retired population – in capital preservation modes. After all, who would take care of them in their rainy days – which, with the suddenly longer life expectancy, are expected to have become far more numerous? Better give up consumption now and have something for the invalid years. Youngsters, in contrast, can hope to recoup money when exposing themselves to risk and losses; for people above 60, the chances of recouping after losing are slim. Lower interest rates will not induce older people to take more bets: at best they would buy lotteries occasionally for a few bucks, giving up a few cans of beer. Few are in the position of Federal Reserve chairman Ben Bernanke or other public officials, endowed with generous pensions. In Bernanke's case, he can count upon retirement on generous pensions, and speaking and possibly board fees. Push come to shove, he can even return to lecturing at universities.” (Asian Times, July 21, 2012).
“There are two competing models of successful American cities. One encourages a growing population, fosters a middle-class, family-centered lifestyle, and liberally permits new housing. It used to be the norm nationally, and it still predominates in the South and Southwest. The other favors long-term residents, attracts highly productive, work-driven people, focuses on aesthetic amenities, and makes it difficult to build. It prevails on the West Coast, in the Northeast and in picturesque cities such as Boulder, Colorado and Santa Fe, New Mexico. The first model spurs income convergence, the second spurs economic segregation. Both create cities that people find desirable to live in, but they attract different sorts of residents. This segregation has social and political consequences, as it shapes perceptions – and misperceptions – of one’s fellow citizens and ‘normal’ American life. It also has direct and indirect economic effects. ‘It’s a definite productivity loss,’ Shoag says. ‘If there weren’t restrictions and you could build everywhere, it would be productive for people to move. You do make more as a waiter in LA than you do in Ohio. Preventing people from having that opportunity to move to these high-income places, making it so expensive to live there, is a loss.’ That’s true not only for less-educated workers but for lower earners of all sorts, including the artists and writers who traditionally made places like New York, Los Angeles and Santa Fe cultural centers.” (Bloomberg, July 19, 2012).
Levels
S&P 500 Index [1362.66] – Staying above 1360 has proved to be a near-term struggle on two recent occasions. Yet, buyers don’t appear exhausted (or ready to bail), given some visible buy appetite around 1300. Uptrend intact despite short-term stalls.
Crude [$91.44] – An explosive three-week run where the drivers remain mysterious. For now, curiosity lurks around further price escalation.
Gold [$1595.00] – The zigzag pattern since early May 2012 only leads to frustration for trend-followers on either side of the coin. The plot thickens, with a retest of the 1560 level versus the much-anticipated rally beyond 1620. For now, neutrality remains in force while the bias is building on the upside as gold is labeled (or confused) as the demise instrument.
DXY – US Dollar Index [83.37] – For nearly a year, the dollar has steadily strengthened, painting the picture of high demand for “safety” as well as ongoing decline of other currencies. This stronger dollar theme has not shown any signs of weakness, and remains counterintuitive to the nearly 30-year trend we’ve witnessed.
US 10 Year Treasury Yields [1.45%] – Barely holding above previous historic low of 1.43% reached on June 1, 2012. Now the fragile conditions resurface and are marking a new unchartered territory for participants and leaders alike.
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
Observers are wondering why the market is not deteriorating at a faster pace. Is it the buzz of potential further easing (i.e. QE3) or the fact that corporate earnings were not as bad as expected that’s keeping stock markets higher? Investors who succeed within the rules usually know to trade what they are given, so patience may not hurt for those willing to adjust. However, risk-aversion persists in many and fatigued observers continue to recognize that it takes a while to dust off.
The rate journey:
Central banks’ master plan of lowering rates with the intention of increasing inflation expectations remains the ultimate hopes for stimulating growth. These efforts remain more suspenseful than usual, especially when growth is on the decline and cash remains on the sidelines. Perhaps, it is natural to worry and ask the following: Is there enough collective patience with the current central bankers’ plan? Certainly, we keep learning this is not an easy sales pitch. Even in some cases, the Federal Reserve is deferring to politicians to take action:
“The most effective way that the Congress could help to support the economy right now would be to work to address the nation's fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery.” (Chairman Ben S. Bernanke, July 17, 2012).
Rather a bold statement that is not pleasing to hear from the Federal Reserve. Yet again this summer, governance risk is at the forefront for money managers to dissect and ponder. In simple terms, pleading for leaders to make decisions for the health of competitive markets is not quite comforting. In some aspects, this fails to project broader confidence, even for the not-so-savvy financial observer. Basically, this alludes to the fragile state of markets, as stated by various indicators last quarter.
Marketing Risk
Perhaps, the vital capital that is too distant from flowing in the traditional economy is getting much more attention these days:
“A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore – as much as the American and Japanese GDPs put together – according to research commissioned by the campaign group Tax Justice Network.” (The Guardian, July 21, 2012)
Clearly, anyone labeled “ultra-rich” may not see the need to risk capital given the chaotic nature of sentiment. Perhaps, taxes present more of a priority than risk for some groups. Interestingly, even the typical retail account is lowering exposure to stock markets based on weaker volume. On a similar note, S&P 500 companies are holding cash while struggling to move it toward growth-based investments as an ongoing trend. On this topic, the Financial Times points out: “It continues to be depressingly obvious that corporates cannot find anything very exciting on which to spend their money.” (John Authers, July 22, 2012).
Thus, by various measures, it is quite visible regardless of wealth amount or decision-making role that the current deadlock is “trust” based. Bailouts and interventions are a global theme, not a geographic occurrence, and unknown tax consequences and unpredictable government mindsets even fuel the level of discomfort for participants. Yet, the reward for risks taken now is shaping up nicely for those willing to bet on unknowns. However, it takes courage and vision to ignore the much-discussed concerns.
Rerouting
In the last decade, financial engineering such as derivative products have been in great favor versus real investments in core economies. Perhaps, innovation that was heavily saturated in financial services can shift to other areas, such as manufacturing or innovation-based sectors. However, a globalized world makes this thought semi-nostalgic, and political constraints make it harder to envision. But it’s a necessity by all accounts to reenergize growth to entice capital activity.
Technology, as a known innovative sector, is showing relative strength despite a cloudy macro outlook. The successful IPOs of Kayak and Palo Alto Networks last week should not go unnoticed. Plus, the Semiconductor index is at the early stages of showing signs of bottoming, along with fundamentals that turned out not as dismal as previously thought (or desired). Surely, picking the right company’s stock is more appropriate in the sector, but requires further digging as entry points remain attractive for months ahead.
Article Quotes
“These events of the past five years have put the aging, close to retirement – or already retired population – in capital preservation modes. After all, who would take care of them in their rainy days – which, with the suddenly longer life expectancy, are expected to have become far more numerous? Better give up consumption now and have something for the invalid years. Youngsters, in contrast, can hope to recoup money when exposing themselves to risk and losses; for people above 60, the chances of recouping after losing are slim. Lower interest rates will not induce older people to take more bets: at best they would buy lotteries occasionally for a few bucks, giving up a few cans of beer. Few are in the position of Federal Reserve chairman Ben Bernanke or other public officials, endowed with generous pensions. In Bernanke's case, he can count upon retirement on generous pensions, and speaking and possibly board fees. Push come to shove, he can even return to lecturing at universities.” (Asian Times, July 21, 2012).
“There are two competing models of successful American cities. One encourages a growing population, fosters a middle-class, family-centered lifestyle, and liberally permits new housing. It used to be the norm nationally, and it still predominates in the South and Southwest. The other favors long-term residents, attracts highly productive, work-driven people, focuses on aesthetic amenities, and makes it difficult to build. It prevails on the West Coast, in the Northeast and in picturesque cities such as Boulder, Colorado and Santa Fe, New Mexico. The first model spurs income convergence, the second spurs economic segregation. Both create cities that people find desirable to live in, but they attract different sorts of residents. This segregation has social and political consequences, as it shapes perceptions – and misperceptions – of one’s fellow citizens and ‘normal’ American life. It also has direct and indirect economic effects. ‘It’s a definite productivity loss,’ Shoag says. ‘If there weren’t restrictions and you could build everywhere, it would be productive for people to move. You do make more as a waiter in LA than you do in Ohio. Preventing people from having that opportunity to move to these high-income places, making it so expensive to live there, is a loss.’ That’s true not only for less-educated workers but for lower earners of all sorts, including the artists and writers who traditionally made places like New York, Los Angeles and Santa Fe cultural centers.” (Bloomberg, July 19, 2012).
Levels
S&P 500 Index [1362.66] – Staying above 1360 has proved to be a near-term struggle on two recent occasions. Yet, buyers don’t appear exhausted (or ready to bail), given some visible buy appetite around 1300. Uptrend intact despite short-term stalls.
Crude [$91.44] – An explosive three-week run where the drivers remain mysterious. For now, curiosity lurks around further price escalation.
Gold [$1595.00] – The zigzag pattern since early May 2012 only leads to frustration for trend-followers on either side of the coin. The plot thickens, with a retest of the 1560 level versus the much-anticipated rally beyond 1620. For now, neutrality remains in force while the bias is building on the upside as gold is labeled (or confused) as the demise instrument.
DXY – US Dollar Index [83.37] – For nearly a year, the dollar has steadily strengthened, painting the picture of high demand for “safety” as well as ongoing decline of other currencies. This stronger dollar theme has not shown any signs of weakness, and remains counterintuitive to the nearly 30-year trend we’ve witnessed.
US 10 Year Treasury Yields [1.45%] – Barely holding above previous historic low of 1.43% reached on June 1, 2012. Now the fragile conditions resurface and are marking a new unchartered territory for participants and leaders alike.
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, July 16, 2012
Market Outlook | July 16, 2012
“It is far better to foresee even without certainty than not to foresee at all.” Henri Poincare (1854-1912)
Never Certain
Like last summer, talk of uncertainty is abundant, but when it comes to making investments, one should ask, when was it ever certain? The answer is usually never. Risk aversion may be overly discussed and in higher demand (for comfort seekers) even with low volatility and near-historic low interest rates for yield seekers.
This low-rate environment is too well established by now and is a global phenomenon. Generally, these efforts are believed to push investors into taking more risks than saving. However, the end goal of quantitative easing (QE) is to raise inflation expectations with the hope of forming some sort of stability. Stimulus efforts of all kinds globally are debatable as to whether they are successful or not. At times, the disconnect between the real economy and “fed speak” certainly can sap the excitement out of an observer.
Dependence
Meanwhile, the Federal Reserve of New York reminded us that without stimulus efforts, the S&P 500 Index would be 50% lower – an attention-grabbing finding indeed. This study illustrates the heavy influence of Federal Reserve policies on market responses. Bravado or not, the stimulus efforts do shape minds and move markets in an environment where most look for guidance from central banks. Certainly, betting against the central bankers has not been a wise or brave move for a fund manager. As for the future, the verdict remains unknown, with increased distrust and questioning of central banks’ leadership (some driven by politics, of course). Importantly, recent chatter mildly hints at increasing odds of further quantitative easing to come, despite ferocious and growing opposition. Yet, the real economy has a key role to play and probably will have final say in shaping further policies.
Growth Dilemma
After a decade of growth in emerging markets (particularly China) and commodities, pundits and risk-takers alike are confused as to the next wave of growth. We keep learning that growth is scarce for now and anticipating growth appears too hopeful in some ways. Thus, we’re in a deadlock, in terms of price movements where risk-averse participants are not convinced of good growth stories.
Clearly, last week the losses announced by a financial company combined with a US city filing for bankruptcy added a dent to an already beaten-up sentiment. Plus, with each event we discover the complexities of financial markets and how so-called experts may not fully grasp the intertwined or opaque practices. However, on the bright side, it’s safe to say present ugly realities are confronted politically and financially more than at the peak of 2007 summer highs. Lessons learned are valuable for those looking beyond the intermediate-term suspense of an election year.
Participation
Casual participants appear fed up with the guessing game, especially when the day-to-day pounding news of uncertainty causes more confusion than conviction. Stock market observers have noticed declining volume as part of a slowing demand:
“Its [New York Stock Exchange] volume has dropped 40% in the past two years. In June 2011, average daily volume was 2.2 billion shares. In June 2010, 3.0 billion. That number came in a volatile period after the Flash Crash of May 6, 2010. But was itself down 6.9% from June 2009, a year earlier.” (Securities Technology Monitor, July 11, 2012).
This decline in stock market volume is not to be confused with increased volatility or decline in value. It primarily showcases the individual investor’s lack of appetite for participation in stocks in the post-crisis era. Now, a lack of popularity can invite opportunities that are less crowded for patient but more diligent investors. Bargain hunting is underway in some sectors, while further discounts are awaited in others. That said, the rest of the earnings season could set the tone for the new expectations to stir some new participants.
Article Quotes:
“To get a sense of magnitude, consider this: If Libor was understated by an average of only 0.1 percentage point for a year, the discrepancy on the roughly $300 trillion in interest- rate swaps outstanding at the time would add up to $300 billion. That’s about a fifth of the aggregate capital of the 16 banks whose reports were used to calculate Libor in 2008. Much of that amount would not be actionable, but it also doesn’t account for other types of financial contracts or potential punitive damages. It’s in no one’s interest if the prospect of decades of litigation, and prolonged uncertainty about the ultimate cost, cripples the banking system. It’s certainly the last thing a struggling global economy needs. Bank executives, regulators and prosecutors should be thinking now about how to come clean quickly, compensate the victims and move on. The fund set up by BP Plc to pay claims related to the 2010 Deepwater Horizon oil spill offers one possible template. Banks could pool their resources into a global Libor victims’ compensation fund, appoint an independent administrator and create a transparent formula to calculate damages. Doing so might persuade angry clients to settle rather than pursue litigation that would serve mainly to enrich armies of lawyers.” (The Editors, Bloomberg, July 12, 2012)
"Understanding this dynamic, it follows that QE will have its greatest impact on financial markets when interest rates and risk-premiums have spiked higher. If interest rates are low already, and risky assets are already priced to achieve weak long-term returns (we estimate that the S&P 500 is likely to achieve total returns of less than 4.8% over the coming decade), there is not nearly as much room for QE to produce a speculative run. Leave aside the question of why this is considered an appropriate policy objective in the first place, given the extraordinarily weak sensitivity of GDP growth to market fluctuations. The key point is this – QE is effective in supporting stock prices and driving risk-premiums down, but only once they are already elevated. As a result, when we look around the globe, we find that the impact of QE is rarely much greater than the market decline that preceded it. … In short, the effect of quantitative easing has diminished substantially since 2009, when risk-premiums were elevated and amenable to being pressed significantly lower. At present, risk-premiums are thin, and the S&P 500 has retreated very little from its April 2012 peak. My impression is that QE3 would (will) be unable to pluck the U.S. out of an unfolding global recession, and that even the ability to provoke a speculative advance in risky assets will be dependent on those assets first declining substantially in value." (John Hussman, July 9, 2012)
Levels:
S&P 500 Index [1356.78] – At a healthy range above both the 200- and 50-day moving averages. Showing a revival after a dismal April and May, yet strength remains unconfirmed.
Crude [$87.10] – Trading between $80-$100, which has become a familiar place in the post-2008 era. Trend-following in this volatile commodity remains tricky, especially with unfolding events. It’s fair to say that buyers and sellers lack conviction for now.
Gold [$1595.00] – No major change from the last weeks or months. After a four-month decline, anxious buyers are seeing momentum develop to break through the $1600 range.
DXY – US Dollar Index [83.34] – Flirting with new highs yet again. The strengthening dollar theme is alive and well for over a year – mostly as a function of relative gain as others devalue their currency.
US 10 Year Treasury Yields [1.48%] – Demand for safety via Treasuries is too visible as yields approach all-time lows, as witnessed on June 1st, 2012 (1.43%).
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed.
Monday, July 09, 2012
Market Outlook | July 9, 2012
“Order is repetition of units. Chaos is multiplicity without rhythm.” (M. C. Escher, 1898-1972)
Heating puzzle
It was a holiday-shortened week that witnessed further coordinated global easing and the ever-so-common interventions. Then, the US jobs results triggered heated political discussion points on levels of growth. Meanwhile, the stock market trading in a narrower range witnessed some mild reactions to the labor conditions. Despite headline excitement, the overall New York Stock exchange volume stood well below the norm, which reveals lackluster participation rates. Yet, the broad US markets are up for the year (S&P 500 Index: 7.7% and Nasdaq 100: 14.7%) but emphasis might be biased around the deflating sentiment.
Plus, lack of comfort in the debatable economic growth measures presents edginess, especially when the revived manufacturing data took a dip. There’s plenty to decipher in the labor conditions, but it’s safe to say that good news remains very scarce. This justifies owning stocks more than selling – at least from a contrarian view. Thus, the search for quiet summer months is harder to find in recent years with the interlinked nature of markets and dissatisfied audiences with varying self-interest. Investors will have to sort out the loud rhetoric versus actual unknown results. That’s where the limited opportunities lie for the brave and patient.
Ambiguity mounting
Through all this, the mystery of quarterly corporate earning results looms around the corner – not to mention the Eurozone turbulences that can erupt periodically or be resolved temporarily. In any case, we’re accustomed to both. Clearly, the low interest theme is a global phenomenon stretching beyond US central banks. China’s recent policies may require additional time to digest from the recent slowdown. It’ll be a tough month ahead for speculators and forecasters of all kinds. Thus, the speculative nature of markets is viewed as less of a skill or luck, and is based more on guessing outcomes. Maybe that entices some, but the whole idea of making money for retirement in markets is questioned severely. Finding shelter in “safe assets” has proven to be unsatisfying, which showcases no shelter for risk avoidance in this recovery cycle.
Then of course, there is the not-so-pleasant "debt ceiling" issue that may resurface as a potential near-term disruption. It all adds up to a less cheery anticipation, while expert knowledge for forecasting is in less demand in this changing landscape of financial services. However, the grim outlooks require as much scrutiny as the hopeful bunch, which will require more patience than desired.
Trust restoration
Rebuilding confidence in the financial system is difficult to manage, especially when recovery itself is not collectively convincing. Large banks have seen their shares of challenges from defective instruments, hedges that have gone wrong and reputational residues from crisis fallout. The recent flurry of regulatory framework being established is colorful, but practical results are unclear, causing minor trepidation. Thus, central bankers, policymakers and larger private companies are facing critical decision points. Fund managers will be forced to think critically rather than guessing in the weeks ahead. Perhaps, that’s a valuable moneymaking skill along with patience to combat this murky setup.
Article Quotes:
“We showed that the manufacturing multiplier – the number of indirect manufacturing jobs generated by one additional manufacturing job – is higher than conventionally believed. This is extremely important for understanding the current job weakness of the U.S. economy. The offshoring of production, and the large trade deficits, may have affected employment more than most economists thought. This also helps us situate manufacturing in today’s tech-driven economy. For the foreseeable future – or at least the next few years – economic growth is going to be led by the broad communications sector. It’s unlikely that manufacturing will ever be as central to the economy as it was before. However, the higher manufacturing multiplier suggests that manufacturing has an important role in running a balanced and sustainable economy, by moving us toward a production economy that creates jobs, that is more stable, and does not rely so heavily on borrowing as our current economy. Of all the benefits, that may be the greatest of all.” (The Progressive Policy Institute, May 2012)
“After thirty years, China is nearing the end of its super-high-growth phase, but that shouldn’t be a shock. It’s much like the twenty-five-year growth spurts by earlier East Asian economies such as South Korea, and it was always bound to slow. But it is resilient. For all the gloom these days, I end up around where The Economist did in April, when it concluded that China’s ‘quirks and unfairnesses’ – financial repression, sops to the state-owned enterprises – will help it withstand a shock. China is still on pace to overtake the United States as the world’s largest economy by 2020. If you want to know if it’s a better investment than other places, consider that U.S. fund managers continue to move in. (They put $2.5 billion into Chinese stocks this year, after pulling out $2.6 billion last year, according to the research firm EPFR Global.) If China was a stock, it would be down now, but, viewed from another angle, that means it is cheap.” (The New Yorker, July 6, 2012)
Levels:
S&P 500 Index [1354.68] –Interestingly, attempts to stay above 1360 failed in late June, and a second attempt in July seems mildly vulnerable. This setup invites short-term technical sell-offs, yet won’t grossly impact the fundamentals of a positive trend.
Crude [$84.45] – A dramatic move from $77 to $88 in matter of a few days sparked a puzzling reaction at the start of this month. Perhaps stabilizing at mid-$80 range as the fundamentals and sentiment remain highly unclear, with some possibilities for further turbulence.
Gold [$1587.00] – Mostly a non-trending theme continues to persist. In the past 10 months, gold has attracted strong buyer attitude around $1540 and waning interest closer to $1750. Long-term believers in the yellow metal anxiously await a lift to sustain a multi-year run.
DXY – US Dollar Index [83.37] – Closed the week very close to annual highs. A strengthening dollar is a theme that’s been building slowly since May 2011.
US 10 Year Treasury Yields [1.54%] – Only a few points removed from all-time lows of 1.43%, while March highs of 2.39% appear further away given the recent pattern. Yet this three-decade downtrend move is surely difficult to turn around over months or quarters.
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
Heating puzzle
It was a holiday-shortened week that witnessed further coordinated global easing and the ever-so-common interventions. Then, the US jobs results triggered heated political discussion points on levels of growth. Meanwhile, the stock market trading in a narrower range witnessed some mild reactions to the labor conditions. Despite headline excitement, the overall New York Stock exchange volume stood well below the norm, which reveals lackluster participation rates. Yet, the broad US markets are up for the year (S&P 500 Index: 7.7% and Nasdaq 100: 14.7%) but emphasis might be biased around the deflating sentiment.
Plus, lack of comfort in the debatable economic growth measures presents edginess, especially when the revived manufacturing data took a dip. There’s plenty to decipher in the labor conditions, but it’s safe to say that good news remains very scarce. This justifies owning stocks more than selling – at least from a contrarian view. Thus, the search for quiet summer months is harder to find in recent years with the interlinked nature of markets and dissatisfied audiences with varying self-interest. Investors will have to sort out the loud rhetoric versus actual unknown results. That’s where the limited opportunities lie for the brave and patient.
Ambiguity mounting
Through all this, the mystery of quarterly corporate earning results looms around the corner – not to mention the Eurozone turbulences that can erupt periodically or be resolved temporarily. In any case, we’re accustomed to both. Clearly, the low interest theme is a global phenomenon stretching beyond US central banks. China’s recent policies may require additional time to digest from the recent slowdown. It’ll be a tough month ahead for speculators and forecasters of all kinds. Thus, the speculative nature of markets is viewed as less of a skill or luck, and is based more on guessing outcomes. Maybe that entices some, but the whole idea of making money for retirement in markets is questioned severely. Finding shelter in “safe assets” has proven to be unsatisfying, which showcases no shelter for risk avoidance in this recovery cycle.
Then of course, there is the not-so-pleasant "debt ceiling" issue that may resurface as a potential near-term disruption. It all adds up to a less cheery anticipation, while expert knowledge for forecasting is in less demand in this changing landscape of financial services. However, the grim outlooks require as much scrutiny as the hopeful bunch, which will require more patience than desired.
Trust restoration
Rebuilding confidence in the financial system is difficult to manage, especially when recovery itself is not collectively convincing. Large banks have seen their shares of challenges from defective instruments, hedges that have gone wrong and reputational residues from crisis fallout. The recent flurry of regulatory framework being established is colorful, but practical results are unclear, causing minor trepidation. Thus, central bankers, policymakers and larger private companies are facing critical decision points. Fund managers will be forced to think critically rather than guessing in the weeks ahead. Perhaps, that’s a valuable moneymaking skill along with patience to combat this murky setup.
Article Quotes:
“We showed that the manufacturing multiplier – the number of indirect manufacturing jobs generated by one additional manufacturing job – is higher than conventionally believed. This is extremely important for understanding the current job weakness of the U.S. economy. The offshoring of production, and the large trade deficits, may have affected employment more than most economists thought. This also helps us situate manufacturing in today’s tech-driven economy. For the foreseeable future – or at least the next few years – economic growth is going to be led by the broad communications sector. It’s unlikely that manufacturing will ever be as central to the economy as it was before. However, the higher manufacturing multiplier suggests that manufacturing has an important role in running a balanced and sustainable economy, by moving us toward a production economy that creates jobs, that is more stable, and does not rely so heavily on borrowing as our current economy. Of all the benefits, that may be the greatest of all.” (The Progressive Policy Institute, May 2012)
“After thirty years, China is nearing the end of its super-high-growth phase, but that shouldn’t be a shock. It’s much like the twenty-five-year growth spurts by earlier East Asian economies such as South Korea, and it was always bound to slow. But it is resilient. For all the gloom these days, I end up around where The Economist did in April, when it concluded that China’s ‘quirks and unfairnesses’ – financial repression, sops to the state-owned enterprises – will help it withstand a shock. China is still on pace to overtake the United States as the world’s largest economy by 2020. If you want to know if it’s a better investment than other places, consider that U.S. fund managers continue to move in. (They put $2.5 billion into Chinese stocks this year, after pulling out $2.6 billion last year, according to the research firm EPFR Global.) If China was a stock, it would be down now, but, viewed from another angle, that means it is cheap.” (The New Yorker, July 6, 2012)
Levels:
S&P 500 Index [1354.68] –Interestingly, attempts to stay above 1360 failed in late June, and a second attempt in July seems mildly vulnerable. This setup invites short-term technical sell-offs, yet won’t grossly impact the fundamentals of a positive trend.
Crude [$84.45] – A dramatic move from $77 to $88 in matter of a few days sparked a puzzling reaction at the start of this month. Perhaps stabilizing at mid-$80 range as the fundamentals and sentiment remain highly unclear, with some possibilities for further turbulence.
Gold [$1587.00] – Mostly a non-trending theme continues to persist. In the past 10 months, gold has attracted strong buyer attitude around $1540 and waning interest closer to $1750. Long-term believers in the yellow metal anxiously await a lift to sustain a multi-year run.
DXY – US Dollar Index [83.37] – Closed the week very close to annual highs. A strengthening dollar is a theme that’s been building slowly since May 2011.
US 10 Year Treasury Yields [1.54%] – Only a few points removed from all-time lows of 1.43%, while March highs of 2.39% appear further away given the recent pattern. Yet this three-decade downtrend move is surely difficult to turn around over months or quarters.
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, July 02, 2012
Market Outlook | July 2, 2012
“More important than the quest for certainty is the quest for clarity.” François Gautier (1959-present)
Perspective simplified
If one observer stated: Interest rates are extremely low, volatility remains low and oil prices are way off from previous highs, then it would have been sufficient to expect higher US stock prices. At least, that has been the thought process in the minds of active investors, especially in recent years. In any random year or cycle, this setup generates broadly accepted expectations of good returns.
To take a step back, last weekend, crude closed below $80, volatility index below 20 and US 10 year yield below 2%. So perhaps we should not be overly surprised that the S&P 500 Index gained 2.03% for the week and remains up 8.31% for 2012. All noise aside, the combination of these key barometers paints an actual positive year for stockholders. This is rewarding for those who favored some risk over safety in a period of increased fear mongering.
Search for clarity
Psychology, of course, finds a way to distort one’s view in looking back at last quarter. Thus, consider if the question was asked in the last few weeks: Why are US stocks not much higher? Perhaps, even the not-so avid-observer would loudly proclaim European worries are one key factor. Similarly, a global observer would add China is slowing and confidence in that market is dwindling faster. Of course, both points have some merits based on recent data that contribute to shaky sentiments.
Any interpretation of a Eurozone rally might attract doubters more quickly than believers. What have become tiresome acts of injections and “pain relief” actions from policymakers still leave some skeptics. That's the expected feel, especially over the weekend after a stunning up day to close the month. An ongoing lack of faith in “leaders” is a common jargon these days but doesn’t get much weight in long-term market performance. Converting non-believers to take risks has proven to be a daunting task thus far. Generally, to change minds requires drastic moves. At this junction, the bearish train is still relatively crowded. For example, the following indicator from last week offered this view:
“According to the American Association of Individual Investors (AAII), bullish sentiment dropped from 32.89% to 28.7% for a drop of 4.19 percentage points.” (Bespoke Investment, June 28, 2012)
Market participants have yelled and screamed about their dislike for potential returns due to global concerns. However, if Europe is not as bad as expected while China's true economic sustainability is a mystery (not overly grim), then things are not as bad as was thought. Then the element of an upside surprise lives on again for the second half of this year. Importantly, underestimating the prospects of a coordinated boost from policymakers in US, UK ECB and China is dangerous to ignore, even if these efforts produce short-lived results.
In the case of China, the FTSE China Index (FXI) peaked nearly five years ago and has remained sluggish. Therefore, the prospect of weakness is hardly a new element to Chinese stocks. Plus, the eight-month weakness of Chinese manufacturing showcases that bad news and worst-case scenarios are deeply factored in. However, the mystery of the outcome will drive further suspense and plenty of speculations.
Slow Revival
The lack of alternatives for liquid assets leads to piling on into known instruments. This increases the odds of collective asset price appreciation for global stocks. Of course, reward is not always a result of impressive fundamentals or an increase in innovative sectors. Uncertainly over pending regulatory climate creates some hesitancy in the near-term. Perhaps, the financial service dilemma is adjusting to new changes, new participants and inevitable new policies that are needed for several years.
For now, the message from the first half echoes a fragile revival in the post-2008 era. This transition phase divides the outlook between frustrated and forward-thinking investors. It’s these inflection points that shape valuable investments and timely entry points. Thus, ignoring the noise of fear has been fruitful this first half, despite few turbulent periods.
Article Quotes:
“Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no ‘peak-oil’ in sight. The full deployment of the world’s oil potential depends only on price, technology, and political factors. More than 80 percent of the additional production under development globally appears to be profitable with a price of oil higher than $70 per barrel. The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation, although the U.S. boom is difficult to be replicated given the unique features of the U.S. oil (and gas) arena. Whatever the timing, emulation over the next decades might bear surprising results, given the fact that most shale/tight oil resources in the world are still unknown and untapped. China appears to be the first country to follow the U.S. example.” (Belfer Center for Science and International Affairs, Harvard University, June 2012)
“The black letter law that is taught in law schools is inevitably the codification of past views on finance and financial practices that may no longer be up to date at the time it is taught or practiced by recent law graduates. The high level of technical sophistication needed to master these areas of law tends to obscure the dis-connect between law on the books, the theories that may have informed this law, and the actual operation of the financial system. Lawyers do, however, play a critical role in the world of finance. They help structure new instruments, advise market participants on the legality of their actions and devise strategies for them to minimize the costs of regulatory restrictions. Lawyers also serve as expert witnesses to Congress and work in committees or at regulatory agencies that are charged with developing new legislation or regulations. This requires that lawyers know something about how markets operate in the real world. The most critical factors in these alternative theories are Imperfect Knowledge and the Liquidity Constraint, and the interaction between the two. They help explain why markets tend to destabilize even under assumptions of actor rationality and ready access to relevant information. These theories therefore hold important clues for rethinking not only the governance of finance but the organization of the financial system itself.” (Selected Works, Katharina Pistor, June 2012)
Levels:
S&P 500 Index [1362.16] – Signs of recovery from spring sell-offs and a strong bottoming statement made on June 4th at 126.74. Skeptics linger, but positive stability continues to emerge.
Crude [$79.76] – The one-day sharp rise slightly makes up for the recent decline from $105 to $77. The follow-through is awaited as the next main target is at $90.
Gold [$1598.50] – Several weeks of non-eventful but stabilizing movement closer to $1600.
DXY – US Dollar Index [82.25] – The multi-month strength in the dollar remains in place. Nearly a year since the index bottomed at 73.42.
US 10 Year Treasury Yields [1.64%] – Interestingly, the last trading days showcase a narrowing range between 1.55% and 1.65%. Trendless in some ways, but clearly the low end of the range is not a short-lived incident for now.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, June 25, 2012
Market Outlook | June 25, 2012
“Simplicity is the ultimate sophistication.” Leonardo da Vinci (1452-1519)
Familiar actions
Major assets have appeared fairly synchronized in the past few months, highlighted by sharp commodity declines. As usual, higher and reliable returns with low turbulence are hard to find. Instead, we’re in a discovery period where lofty expectations have not been fully met. Through this familiar puzzle, another round of stimulus efforts was announced last week to a less-than-enthusiastic audience. The Federal Reserve’s statements reiterated the need for milder stimulus while projecting an uncertain tone for pending recoveries. Of course, for economists tuned in to the central bank’s nuances, a lot of the substance is not earth shattering. Unfortunately, bold actions or empathic messaging by central bank officials ahead of elections is not too common. Yet, the fund manager remains challenged in a world of limited liquid assets and scarce investable instruments, given low interest rates.
Uncommonly Common
An inverse relationship between oil and stocks is discussed too often, at least in the past, but is yet to materialize in that manner in recent months. Crude prices coming down sharply have not guaranteed a rising stock market. Amazingly, around the increasing Iran turbulence in mid-spring, some observers were buying into explosive runs in crude prices. This has not been the case thus far, but the year is only halfway finished. Surely, sensational stories rarely end up driving the fundamentals over time. Perhaps, this is a valuable lesson to remember as it resurfaces in various trends where the newsworthy item is confused with prevailing drivers.
Behavior in crude markets in many ways reflects the global economy weakness – a not-so-pleasant barometer but a realistic awakening. Crude prices mirror the downturn of emerging markets. That's clearly visible in emerging market indexes (EEM), which paints a more powerful picture. Since March 2012, the emerging market index has declined by nearly 16%. In that same period, crude prices declined by 28%, where weakness in China served as a key catalyst to many of the subsequent sell-offs. Of course, the Eurozone background further fuels the threat of a slowdown and at some point this trend is overdone. If crude serves as a sentiment indicator, then confidence for commodity-related areas presents an inflection point.
Naturally, the next question relates to gold prices’ ability to live up to hype of protecting against so-called fear. Gold’s price appreciation did not signal the death of “paper assets” but surely left its mark since the early 2000s. The strong and growing belief in gold prices extends from central banks to hedge fund managers to the individual investor. However, the popularity of gold increases with every perceived troublesome piece of Eurozone news or slowing growth in emerging markets. It’s important to note that this spring, when unpleasant general news resurfaced, gold trading patterns did not make a big splash as a safe haven. Instead, prices retreated modestly. Now those disliking the Federal Reserves statements greatly await a resurgence in gold prices. This thesis is suspenseful but never easy as it looks at first glance.
Risk Misunderstood
A simplistic observation may point to glaringly shaky confidence across assets globally. Interestingly, moments such as these occur one or two times a year – in which buying unfavorable assets may lead to a rewarding result due to misunderstanding of bad news. A cliché perhaps to hear, “buy when everyone sells,” but how often is this applied? It’s a question for researchers to decipher, but in recent memory, risk-taking at periods of low confidence has proven fruitful. With so much institutional capital chasing reliable (liquid) returns, the opportunity to bet big in lesser-known areas has its virtues. Buying selectively in a period of loathing usually provides an opportunity, but the window tends to close faster than desired.
Figuring out if demand for safety is trading at a premium is severely challenging. Based on the volatility index, turbulence is contained, at least in US stocks. And that’s not so clear, especially when the Volatility Index (VIX) is closer to annual lows rather than highs. In a period of confusion, risk-taking is not such a bad idea if executed in a timely manner with conviction. Importantly, when well-known pundits/fund managers begin to dislike stocks, that may be positive for smaller investors willing to take a chance in neglected themes.
Article Quotes:
“It used to be that homeownership signaled and led to economic growth. But that relationship was tied to the industrial era, when building and buying more homes primed the pump of America’s great assembly-lines, increasing demand for cars, appliances, televisions, and all manner of consumer durables. Those days are gone. The United States is a now knowledge and service economy; less than ten percent of Americans work in some form of manufacturing and just 6.5 percent are engaged in actually producing things. The stuff Americans buy is largely made offshore. Instead of leading to economic development, higher rates of homeownership today are associated with lower levels of it. Homeownership is either not correlated or negatively correlated with the big drivers of economic development. Writing recently in the Wall Street Journal, Dan Gross notes the shift in this country toward a ‘rentership society.’ But this is not to say that the U.S. is destined to become a ‘nation of renters.’ The issue is one of balance. The rate of homeownership in America hit an all-time high of near 70 percent right before the crisis and has since dropped back to roughly 65 percent today.” (The Atlantic, June 20, 2012)
“As part of its diplomatic pressure on Tokyo, Beijing appeared to halt exports of so-called rare earth metals – a resource vital to many of Japan’s high-tech industries – prompting alarm among some of the many other countries that rely on China for the actually not-so-rare metals. At the time, China claimed that it hadn’t directed exports to be halted, suggesting that it was a spontaneous decision by all its exporters. Few were convinced, and the Chinese move was followed by a round of deals among other nations and much media speculation about a possible Chinese stranglehold on other nations’ economies and even national security. To be fair to China, there had already been warnings over the environmental toll that illegal mining of rare earth metals was taking, and the government warned that it was tightening up on such activity, adding that it was this crackdown, and not exploitation of its virtual monopoly, that was driving its cuts in export quotas. … But will an announcement by China this week change things up again? In a policy paper, Chinese officials warned a decline in its rare earth reserves in some mining areas was ‘accelerating.’ ‘The Chinese government exercises strict control over the total volume of rare earth smelting and separation, and will not approve any new rare earth smelting and separation projects except for those state-sanctioned projects of merger and reorganization and for distribution optimum. Existing rare earth smelting and separation projects are prohibited from expanding their scale of production.’” (The Diplomat, June 20, 2012)
Levels:
S&P 500 Index [1335.02] – Buyers showed plenty of interest around 1300, but near-term pressure is building to stay above 1350.
Crude [$79.76] – A four-month sharp decline continues. Dramatic drop, considering March 1, 2012 highs of $110. Attempting to bottom closer to the $80 range.
Gold [$1565.50] – Recent weeks demonstrate a back-and-forth movement between 1550 and 1600.
DXY – US Dollar Index [82.25] – The dollar-strengthening theme continues since last May. Closely approaching annual highs in the near-term.
US 10 Year Treasury Yields [1.67%] – Last few trading session suggestions point to a tight range between 1.56% and 1.68%. Filtering with annual and all-time low levels, yet some signs of stabilization.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, June 18, 2012
Market Outlook | June 18, 2012
“Apprehension, uncertainty, waiting, expectation, fear of surprise, do a patient more harm than any exertion.” (Florence Nightingale 1820-1910)
Newer Focus
With a lack of many growth stories, attention has shifted to election outcome, stimulus efforts, and collaborative problem solving. All three factors serve as stimulants or depressants for anxious participants depending on the day—a new environment for fund managers used to chasing momentum in flourishing companies. These days, those remaining in financial services are engulfed in deciphering legal and political risks, which in turn influence the day-to-day movements. In some ways, investors appear fed up with the increasing list of unknowns and the complexity of justifying loses. Investors continue to grapple with the ongoing reminder of fearsome headlines. The acknowledgement of “global recession” is a reoccurring discovery for some, but let’s remember markets get over things quicker than imagined.
Clearly, there is no escape from sluggish economic realties and increased monitoring of government related decisions. At the same time, cheerleading election results in Greece certainly cause a fast reaction to uplift deflated moods. Similarly, easing expectations by central banks is alive and well:
“More than $1.5 trillion was added to the value of global equity markets in the past two weeks on speculation the Federal Reserve will join central banks in bolstering growth at its policy meeting this week” (Bloomberg, June 17, 2012).
Ongoing intrigue of stimulus efforts might create some suspense; however, the election outcome is too much of a wildcard for many money managers to take on bigger bets.
Trend Search
For the intermediate-term, there are few reasons to brush off these panic-like collapse theories. After all, the S&P 500 Index is bottoming here, offering a chance to speculate or even invest. The June 4th lows in broad US indexes and a peak in volatility slowly set the stage for a pending recovery. In fact, talks of further easing, combined with better than projected events, usually lead to surprising outcomes. A confused audience may mistake bad projections with worsening conditions and deteriorating asset prices. Surely as challenging as it maybe, avoiding thesis based on known apathy can be fruitful at this junction.
If four years ago felt so stunning with bail outs and near collapses, it would take plenty to convince one that things will turn out better four years from now. But with a world focused on shorter-term events, it’s even harder to convince participants of the advantages of long-term investment. Perhaps, capital allocators struggle to imagine significant money flowing to less liquid assets or aggressive risk taking. Mood swings are harder to quantify, and mind reading is not a certified profession either. Thus, this speculative climate overemphasizes the risks while underestimating rewards. The week ahead can test this train of thought.
Safety Overdone
Perhaps, the "safe asset" obsessions may take a breather in the second half of this year. At least, we can surmise a minor bubble that’s forming with the ongoing rush to safer instruments. Plus, owning US treasuries is getting too crowded when larger capital continues to allocate to familiar assets. Similarly, Gold is mildly awakening from annual lows and attempting to reenergize its fan base. There is a strong belief that Gold solves many risk management issues. That biased view is easily sold as fact, and that should concern owners. As confidence restoration shifts to traditional markets, there might be unexpected consequences for overpaying for more liquid and lower yielding assets. As unpopular as this scenario might be, it is worth planning for a surprise or two.
Article Quotes:
“Either we take stronger steps to ensure the integrity of the banking system on our own, or outsiders will press for more regulation and oversight. Or we have free markets that function effectively, or Congress, lawyers, and the Occupy Wall Street movement will keep the pressure on—and rightly so. On the whole, most US banks have taken intelligent steps since the financial crisis. They’ve doubled their capital, shed (mostly) poor assets, and increased liquidity. Yet you don’t hear much about this because such quiet progress has been overshadowed by a host of relatively minor misdeeds that reinforce the perception the playing field is tilted in favour of banks. Heads, they win. Tails, US taxpayers bail them out. And with each negative headline, the banking industry loses more control of the narrative. If those outside the financial sector take over the process of cleaning up Wall Street, it will be more unpleasant and indiscriminate. As banking becomes ever more complex, outsiders have correspondingly less insight into the internal functions of major global banks and are likely to use blunt and potentially less-effective tools to try to control these huge companies.” (Mike Mayo, Financial Times, June 18, 2012).
"Examples of investor demand for safe, liquid assets are not hard to identify. One source has been foreign official investors, mostly emerging market countries, which invested about $1.6 trillion in the United States in the four years preceding the crisis, largely in U.S. Treasury and agency securities. Much of this activity arose from the investment of foreign exchange reserves by countries running large current account surpluses. Some of these reserves were undoubtedly built up as a precautionary measure in light of the financial problems in emerging markets during the late 1990s, while others are attendant to policies of managed exchange rates. This official sector demand for safe assets was largely if not entirely focused on U.S. government securities, rather than cash equivalents. But this source of demand absorbed roughly 80 percent of the increase in U.S. Treasury and agency securities over the four-year period, potentially crowding out other investors and thereby increasing their demand for cash equivalents that appeared to be of comparable safety and liquidity." (Governor Daniel K. Tarullo, Federal Reserve, June 12, 2012)
Levels:
S&P 500 Index [1342.84] – Early signs of bottoming between 1280 and 1320. Better gauge of buyers’ enthusiasm awaits in weeks ahead.
Crude [$84.10] – Digging from annual lows of $81 reached last week. The sharp fall since March 1st will take a while to recover. In the near-term, attempts to reach $90 are bound to stir some attention.
Gold [$1627.25] – Buyers’ interest confirmed at $1550 and $1600. Observers await to see if sustainable buying will resume back to $1750.
DXY – US Dollar Index [81.62] – Dollar strength is retreating since June 1, 2012. Yet, the strength since May 2011 remains in place.
US 10 Year Treasury Yields [1.57%] – Stuck near all-time lows as demand for treasuries remains high. April 2010 marked a noteworthy peak at 4%, and since last summer, below 2.50% defined the range.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, June 11, 2012
Market Outlook | June 11, 2012
“Courage is not simply one of the virtues, but the form of every virtue at the testing point.” (C.S. Lewis, 1898-1963)
Struggle Recognized
Participants acknowledge and accept the slowing growth environment as showcased by recent data. Now, with that reality established, occasional panic-like responses are less of a shock these days than previously imagined. At the same time, casual investors have run out of patience in dealing with risk taking, while most fund managers reexamine the stability of financial systems in a fragile period.
Required adjustments in policy making stirs fearful responses for Chinese or Brazilian leaders, despite being touted as the alternative option to the U.S. and Europe. Equally, developed markets leaders quarrel with stimulus and economic revival deliberation on a daily basis. Of course, different challenges face matured versus maturing economies. Yet both face heavy scrutiny in navigating in the uncharted territory of a highly connected but slowing global system. In a cycle where unknowns have escalated dramatically, being a risk taker takes on a different meaning, and risk itself takes a while to grasp.
Intertwined Puzzle
Discovering the true nature of the Eurozone conditions is tricky and frankly ugly, when considering the political maneuverings. Equally, gauging the rapidly changing investor perceptions creates some suspense. Being optimistic on postponement of bad news is not a solid investment plan, but it is somewhat a common practice. Specifically a bail out rally, as showcased with Spain over the weekend, may turn out to be short lived, but that surely does not discourage the crowd from cheering.
Meanwhile, betting against the world's key assets is questionable, despite the constant urges from overly cautious crowds. Yet, in most cases, courage is known to pay more in markets than a long bet on sustainable demise. Even in a period where there is a "1930's" like depression, it is often quoted not necessarily safe to bet against traditional assets. For over three years, we've learned that moods are hard to decipher; faith in political leaders is at somewhat desperate lows; and growth industries aren't glaringly obvious.
Fearing Good News
In regards to envisioning a surprise element of a rally, it is healthy to feel fear in a period where there is surrounding overemphasis on the current list of worries. Still, it’s not quite accurate to proclaim that panic is at the highest level, with the Volatility Index closer to 20 than 40. Yet, an upbeat outlook and pragmatic case for further strength is in play. A lack of desired returns, along with the slowing of emerging markets, are points that are inescapable for fund managers. Buying land, infrastructure projects, and/or other real assets continue to gain momentum for now, while the overcrowded “safe asset” mania raises questions and doubts of a new bubble.
Finding bargains in the weeks ahead (value stocks or in select commodities) can stimulate buyers who are playing catch on their portfolios’ annual returns. In the last two summers, the post panics rallies ended up spoiling us into forgetting the previous concerns and tensions. Interestingly, a similar set up is building here. Chart observers and odds makers like the chances of a recovery, and headlines might paint a pleasant picture. Thus, anticipating several series of good news ahead of the election is not worth underestimating.
Article Quotes:
"Capitalism did not end, because of two major adaptations. First, the organizing and political clout of workers grew and allowed them to fight back through progressive legislation. The Progressive Era and the New Deal in the U.S., and labor governments in Europe, broke up the trusts, reined in the runaway wealth of the elite with progressive income and estate taxes, and empowered workers to bargain to gain a larger share of the benefits of their productivity increases. In the short run, the wealth and power of the elites was diminished (which is why they fought these changes tooth and nail and predicted the end of America, democracy, and everything else would result). But in the long run, these changes put the masses back on the side of sustaining capitalism, and kept it going…. Sadly, Marx was right about one aspect of capitalism—it is prone to periodic crises. Even rational actors tend to over-borrow if they are unduly optimistic about asset values and risk; the adjustment of labor forces to new technology is not a smooth and frictionless process; and the political institutions that provide the vital legal and contractual framework for capitalism to function can sometimes get clogged by political clashes and deadlock, or turn out to be wrongly designed to cope with the kind and scale of economic problems that emerge from growth." (The Atlantic, June 7, 2012)
“In the past, money manager Blau had no qualms about buying bonds issued by banks. But since the Lehman Brothers bankruptcy and the Greek disaster, no investor is willing to lend banks money without demanding substantial collateral in return. Instead, Blau is increasingly making the kinds of investments that banks used to make, in real estate, for example. When Deutsche Bank sold its freshly renovated twin towers in Frankfurt to its fund subsidiary DWS last year, the financing came from Allianz.There is little Blau isn't willing to explore in his search for investment returns, from infrastructure projects to wind farms. The latest craze is, of all things, parking meters. Two years ago, Allianz and a group of partners invested €1 billion in a company that operates parking meters in Chicago. And while banks shy away from funding Germany's cash-strapped local authorities, insurance companies are increasingly interested in municipal bonds. German life insurer R+V Lebensversicherung recently bought €20 million in bonds from the western German city of Wiesbaden.” (Spiegel Online International, June 5, 2012)
Levels:
S&P 500 Index [1325.66] – Strong case for an early bottoming process at 1288-1300. The near three month correction can entice further buying.
Crude [$84.10] – Following a sharp drop since March 1st, Crude still remains around 13% removed from 200-day moving average. Staying above $84 will set the tone and provide clues as to buyers’ appetite.
Gold [$1576.50] – Much anticipated inflection point between $1550-1600, in which buyer demand is long awaited. A failed recover here can stir less confidence for Gold for the rest of 2012.
DXY – US Dollar Index [82.51] – Closer to a higher trend of multi-month range. Ability to keep at these ranges is not clear.
US 10 Year Treasury Yields [1.63%] – Barely holding above all-time lows of 1.43%, while attempting to dig out of the 1.60%-1.80% range.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, June 04, 2012
Market Outlook | June 4, 2012
“There is no wisdom in useless and hopeless sorrow.” (Samuel Johnson, 1709-1784)
Collective breakdown
Through the weekend, the echoes of fear are felt vibrantly for the majority of social and economic observers. It appears too easy to yell about the unpleasant job numbers, especially when they are below expectations. This feeds into the risk-aversion theme which has taken even a new twist, leading to all-time low yields in US treasuries. Similarly, gold aficionados slowly reawaken, at least for a week or two. Considering the current landscape, it is convenient for an impulsive pundit to point fingers at the system or at political leaders. These are contentious times indeed, but the ups and downs are becoming ever so familiar in this shaky era. Worn-down optimists are facing heightened tests for grit in various financial assets.
Interconnected feel
Fund managers who found comfort in emerging markets are now faced with realities of slowing growth. The Purchasing Manger’s Index (PMI) of larger economies confirmed further weakness. Even before the US job numbers were announced on Friday, the global markets were digesting China’s struggles in the service sector. That was enough confirmation to reignite concerns broadly, and below-consensus estimates did not paint an attractive picture.
Last May, the CRB (commodity) Index peaked and has since declined by more than 27%. This offers an early clue to how crude, copper and other soft commodities have stalled in their price appreciation. Perhaps, we should not be surprised at stalling emerging market growth. Naturally, commodities have been strongly linked with emerging market growth, a tone set last decade. Recent emerging market declines confirm for a relative edge of US markets, and that thought is sour now but bound to change with pending political and macro events.
Managing the unknowns
What's known is not pleasing at an early glance and what's unknown is disturbing for most within these panic levels. Summer months stir other fireworks where pleasant surprises seem too far to find. Considering that it’s an election year, and the lack of good news in several weeks, it’s not a bad idea to seek purchasing quality assets. The S&P 500 index ended last week only up 1.7% in 2012. Impressive first-quarter gains are nearly erased, and buyers will get a second chance to evaluate opportunity versus safety. Odds-makers might quickly point out the hopeful setup, and the appeal of contrarian viewpoints seems very timely. After all, fund managers are not paid to dodge risk or to dump assets into “safe assets.” These lessons have played out for the last two years, where the lows for the US equity markets took place in the summer. To repeat near-term history for the third consecutive time might be plenty to ask. Yet, one has to wonder whether there is further room for panic after the escalating turbulence in the last two months.
Article quotes:
“The European authorities had little understanding of what was happening. They were prepared to deal with fiscal problems but only Greece qualified as a fiscal crisis; the rest of Europe suffered from a banking crisis and a divergence in competitiveness which gave rise to a balance of payments crisis. The authorities did not even understand the nature of the problem, let alone see a solution. So they tried to buy time. Usually that works. Financial panics subside and the authorities realize a profit on their intervention. But not this time because the financial problems were reinforced by a process of political disintegration. While the European Union was being created, the leadership was in the forefront of further integration; but after the outbreak of the financial crisis the authorities became wedded to preserving the status quo. This has forced all those who consider the status quo unsustainable or intolerable into an anti-European posture. That is the political dynamic that makes the disintegration of the European Union just as self-reinforcing as its creation has been. That is the political bubble I was talking about.” (George Soros speech in Italy, June 2, 2012).
“For instance, Calpers, the largest US public pension plan, this year cut its assumed rate of return from 7.75 per cent to 7.5 per cent. The fund’s actuary had recommended a cut to 7.25 per cent. Official estimates for US public pension shortfalls range from $500bn to $1tn. Critics have suggested the true number is closer to $2.5tn. Regulations for US corporate plans, and for European and Canadian plans, calculate liabilities based on the prevailing level of bond yields. In 1990, 10-year Treasury bonds paid more than 8 per cent, but have since fallen to below 2 per cent. As interest rates fall, the size of a pension plan’s ultimate liability rises. But rather than lower expectations which might raise contribution requirements, public pension funds have increased allocations to risky assets: from 53 per cent of total assets in 1992, to almost 75 per cent now.” (Financial Times, May 28, 2012)
Levels:
S&P 500 Index [1278.04] – Slightly below the 200-day moving average, as staying above 1250 serves as a near-term test.
Crude [$83.23] – Sharp drop in prices reflecting the slowdown in commodities. Since March 1st, crude has dropped nearly 25%.
Gold [$1606.00] – The last few trading days showcased a bottoming process around $1550. A rejuvenated spike back to $1600 can confirm how gold is perceived as a safe asset
DXY – US Dollar Index [82.89] – At annual highs continuing the strength established in October 2011. If this is a sustainable movement, the next noteworthy level is around 86-88, last reached in summer 2010.
US 10 Year Treasury Yields [1.45%] – All-time lows. Last noteworthy lows stood at 1.65% in September 2011. Before that,1.95% in 1941 marked the multi-generational bottom from a historical point of view.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, May 28, 2012
Market Outlook | May 28, 2012
“Pride makes us artificial and humility makes us real.” Thomas Merton (1915-1968)
Ongoing Outcries
The last four months showcased the decline in prices of assets stretching from gold to oil to global equities. Price corrections usually invite frenzied responses by most and hidden pragmatic messages for others. Certainly, it does not take much to ponder the lack of financial stability. Cautiously, one has to weigh the influence of irrational sellers, which tends to influence the consensus thought at a rapid pace.
For now, known economic barometers reiterate the scarcity of “growth” from China to the Americas while enhancing the expected doubt as the summer months loom. Yet, the European debacle is not going away soon and remains a noisemaking daily matter. Meanwhile, the outcry for stimulus, increased demand for regulation and uproar for solutions is uttered by experts and expressed by the public alike. It’s a theme that’s influencing the leaders of emerging and developing markets. These chatters for near-term solutions are centered on policymaking debates rather than concrete confidence restoration. Perhaps, in a mind-numbing trading environment, one would think fund managers would take a humble view in admitting the unknown consequences of this current era.
Trust restoration
The growing mood of distrust toward stocks has persisted for several months - way before Facebook’s initial public offering. This is a key distinction that’s omitted by the mainstream headline makers. This dampening stock trading volume has for a while forced financial firms to adjust their business models and expectations. At least, the so-called retail or casual investor, not too eager to jump-in, is the overall takeaway, on a relative basis. Regardless of directional moves of broad stock indexes, participation has waned and this trend is questionable. Perhaps, a loss in popularity for an asset class does not necessarily translate to a loss of US relative attractiveness. Neither does distrust of banks confirm a full-blown collapse, at least in the US system. These discoveries can take a while to restore confidence to desired levels for nostalgic observers.
Confronting risks
The volatility index (VIX) is around 20 – much lower than the frantic ranges witnessed in spring 2010 and fall 2011. Perhaps, the “spooked” stock market crowd has graciously bowed out of risk taking, leaving larger firms to wager between each other. Interestingly, recent patterns in Treasury yields and US Dollar suggest increased risk aversion, especially with Eurozone fears serving as the primary catalysts. We see a differing message between the volatility index (for stocks) versus macro-driven indicators. In upcoming weeks, this divergence can provide further clarity and a uniform outlook. Yet through all this fuzziness, bargain hunters are desperately searching for mispriced ideas. Generally, a collective confusion can turn into fruitful entry points, as history tends to illustrate again and again.
Article Quotes:
“To analyze how military experience translates into corporate leadership, the researchers looked up the names of CEOs that ran America’s top companies from 1980 to 2006 and matched them to their listings in various editions of “Who’s Who,” which explicitly requests military background in its annual biographical list of prominent Americans. The percentage of CEOs during this period with military experience – about 30 percent overall – may be surprising to those raised in the post-Vietnam era, who imagine a tiny fraction of 18-year-olds joining the armed forces. But military drafts meant that a stint in the military was quite common for men coming of age during World War II and the Korean and Vietnam Wars. Back in the 1980s, when many war veterans were about the right age to be running companies, nearly 60 percent of CEOs had military experience. Nowadays, with veterans of these wars entering their golden years, only 8 percent of CEOs have served. So whatever characterizes military leadership, it’s increasingly rare in the corner office. (Slate, May 25, 2012).
There are many things I wish America did better, but one thing that is often underappreciated about the place is its remarkable economic and institutional flexibility. When Michigan's economy implodes, that's bad – but people find it remarkably easy to pack up and move to sunnier climes. When Congress can scarcely keep the money for highway repair flowing, the city of Chicago pioneers new public-private sources of infrastructure finance. America's federal government is often a wreck. Luckily, America's success isn't driven almost entirely by the choices and actions of the federal government. … Meanwhile, American innovation is proving as impressive as ever. The golden age of the Space Race may be long gone, but private firms in America are putting ships into orbit. Apple is the envy of the world, and rightly so. Google is doing pioneering work on autonomous vehicles, which could revolutionise transport. IBM's Watson, and things like it, could change medicine and many other fields besides. (The Economist, May 25, 2012)
Levels:
S&P 500 Index [1317.82] – Attempting to bottom around the 1300-1320 range, following the recent sell-offs.
Crude [$90.86] – Back to a familiar range around $90. Down $20 from March 2012 highs as part of a multi-month sell-off process.
Gold [$1569.50] – Remains in an established downtrend and slightly above December 2011 lows around $1531.
DXY – US Dollar Index [82.40] – Since May 1, 2012, the dollar is up nearly 5%. To put it in perspective, the strengthening dollar is far off from last decade’s highs of 121.02. Thus, there is a long way to climb up, and recent changes need plenty of follow through.
US 10 Year Treasury Yields [1.73%] – Flirting with the low end of the recent range. Very close to September 2011 lows of 1.67%, which marked the recovery for risky assets.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, May 21, 2012
Market Outlook | May 21, 2012
“We all live in suspense from day to day; in other words, you are the hero of your own story.” Mary McCarthy (1912-1989)
Continued Apathy
One way or another, tolerance for risky assets is slightly less vibrant today than last May. Recent patterns continue to reignite a frenzy mode, which is visible in several pockets of the market. For example, emerging market (EEM) and small cap (Russell 2000) indexes are lower than last year’s levels by 26% and 10% respectively. It merely reemphasizes what seems a never-ending demand for risk aversion, as confidence restoration is a much longer process than envisioned by optimistic observers. Perhaps, this is not much of a surprise when considering that the New York Stock Exchange volume dwindled to extreme lows in February this year. Meanwhile, the same holds true for the declining trading activity in April 2012. We’re in an era of lower participation rates in stock market speculation despite the overhyped initial public offering witnessed last week. Basically, the overall message is that retail investor participation is slowly diminishing.
A lukewarm appetite for risk taking is much talked about and loudly heard when viewing the strength of the US dollar patterns year over year. Similarly, increasing demand for safety is visible when observing the US Treasury yields closing at 1.73% – very low indeed. Surely, this marks another year in this ongoing period of the “desperate for yield” theme that plagues investors of all kinds. This contributes to risk-aversion behavior for now, despite the strong first-quarter stock performance and gradually improving economy. However, market jitters find a way to express less enthusiasm when several unknowns dampen the commitment levels of experts, veterans and of course capital allocators.
Commodities evaluated
Ongoing thoughts of speculating in oil stocks have lost their luster, as (OSX) reminds us, given its 23% decline extending from February to May 2012. Similarly, crude, which was around $100 a year ago, is now trading closer to $90, as the commodity trading community weighs the balance. For gold-related investments, a hopeful crowd awaits a recovery, but speculators have a lowered buying appetite. According to data (ending May 8, 2012) collected by the Commodity Futures Trading Commission (CFTC), the number of speculators betting on rising gold prices fell to its lowest level since December 2008. Some may argue an inevitable gold recovery is slowly underway, but sideways to down behavior provides us with noteworthy hints. In upcoming weeks, the broad demand for commodities will be revisited, especially with limited options within popular financial vehicles.
Uncertainty accustomed
If the word “uncertainty” felt overused last year, it may turn out to be a commonly used phrase this year, too. Sure, at times, bad news (or current reality) is exhausted until it resurfaces again into actionable thoughts of selling. Now, global indexes wrestle to preserve annual gains as each downside move frightens most people into following patterns seen in summer 2011. Plus, furious elections pending in Europe and the US easily stir up emotional near-term patterns.
The search for a stable Europe, a reliable financial system and sustainable natural growth has not been achievable at political influencers’ desired pace. Perceptions may change here and there, but convincing participants to heavily bet positively is a daunting task, or at least not as easy as was seen last decade. Surely, uncertainty is beyond directional guesses, but subject to shifting moods and changes in some perceptions. For now, the jump in volatility displays further edginess. After all, frustrations arise in financial circles over adjustments from opaque systems to current realities. As wagering on election results creates a summer buzz, the impact of taxes and regulatory measures can provide further guidance for clarity. Perhaps, a collaborative stimulus by central banks may serve as a mild wild card to this inflection point. Yet, the crowd has seen and heard that story before.
Article Quotes:
“And one more point of note for the ‘What, me worry?’ crowd: Just because bond markets in countries perceived as safe, such as the U.S., are blasé about the debt load, it would be a mistake to ignore the lessons of history. ‘Those waiting for financial markets to send the warning signal through higher interest rates that government policy will be detrimental to economic performance may be waiting a long time,’ the authors wrote in their paper. Now for some of the details, starting with a definition. The economists define a ‘debt overhang’ as a five-year period when gross public debt exceeds 90 percent of gross domestic product. According to this metric, Italy, Greece and Japan are charter members of the club, with their most recent episodes beginning in 1988, 1993 and 1995, respectively. The U.S. isn’t in the debt doghouse just yet, given that it first breached the 90 percent threshold after the 2008 financial crisis. But it’s on the waiting list, along with Belgium, Iceland, Ireland and Portugal.” (Bloomberg, May 16, 2012)
“The financial world is more accident prone than ever – thanks in large part to the Internet, the mother of all interconnections. Not only has the Internet supercharged financial innovation and created high rates of growth, but it lies at the heart of many financial normal accidents in the 21st century. In the case of Iceland, the country was welcomed into the European Economic Area, which enabled Icelandic banks to operate throughout the continent as long as they had deposit insurance. At the time, Iceland had a gross domestic product of less than $20 billion. Yet its banks mushroomed in size. By 2008 they had over $100 billion in assets as investors raced to capitalize on high interest rates and the rising value of the Icelandic kronur. Iceland's online banks sucked in $6 billion in deposits from consumers in Britain and the Netherlands in a few years. But when investors lost confidence in the Icelandic economy, it triggered a normal accident. Money that had flowed in over electronic networks, fled at Internet speeds – an electronic run on the banks. There was no way the Icelandic Deposit Compensation Fund could meet its commitments to depositors. Iceland had created banks that were too big to fail in a country that was too small to save them. The kronur went into free fall, and lost half its value.” (The Atlantic, May 18, 2012)
Levels:
S&P 500 Index [1295.22] – From its intra-day peak on April 2, 2012, the index has dropped by 15%. The 200-day average is a few points away at 1278.22, which will be a discussion point to determine if a relief rally is pending.
Crude [$91.43] – For over three months, the sharp declines in crude confirm sustained weakness. First glimpse of bottoming awaited around $90.
Gold [$1589] – A very early sign of a recovery this week from slumping levels. Buyers’ interest showcased below 1550, similar to late December 2011. However, an inevitable bounce needs to prove a sustainable trend.
DXY – US Dollar Index [81.29] – A strengthening statement since May 1. In fact, the dollar index is approaching its multi-month highs achieved in January 2012. Since May 2011, the index is up nearly 12%.
US 10 Year Treasury Yields [1.72%] – A few points above September 2011 lows of 1.67%. Stuck between a bottoming process and an established downtrend. Attentively watched at these very fragile levels, as the risk-aversion participants finds shelter.
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Monday, May 14, 2012
Market Outlook | May 14, 2012
“Agitation is the marshalling of the conscience of a nation to mold its laws.” Robert Peel (1788-1850)
Replaying
Reminiscent of last year, old worries are mounting and new grim facts untangle while fresh sets of discoveries enhance the existing suspense. Fragile attempts at European stability resurface while US business leaders scramble to instill trust as politicians and regulars attempt to deliver a plan for the impatient crowd. From Spain’s nationalization of banks to powerful election results in Europe, collective emotions are flaring. All in all, tension is back again and for market followers the script is becoming too familiar.
Amazingly, numbers find a way to fasinate observers – at least on a simple year-to-year comparision. Strange as it may be, on May 2, 2011, the S&P 500 Index peaked at 1370. Today it’s holding at a delicate range around 1350, leaving buyers and sellers to haggle for the next move. Of course, history does not always repeat itself in the same exact form – at lease we’d like to think so. Similarly, one can glance at the volaitlity index which peaked around 20 last May. Today, the expected fear barrmoter stands around 19.89 as of the end of last Friday. Not quite extreme fear levels, but quite reflective of a sensitive crowd that’s anxiously dealing with known problems but unknown consequences heading into the summer months.
Loss confronted
Against this big-picture backdrop, perhaps last week was not an ideal time to announce the loss of $2 billion dollars, especially for a “risk management expert.” Certainly, these days, there is no mercy for banks admitting fault when the overall climate is increasingly edgy. Unforgiving crowds continue to emerge as a theme that’s visible in voters and investors alike. Basically, the vote of confidence in the existing system is not producing a thrilling response. However, for executives of public companies, it may not be a bad time to dump all bad news in a jittery environment. Piling onto the pot of bad news is one strategy as less pleasant news becomes somewhat of the norm. Thus, discovering a bank loss or lack of control quickly takes us back down memory lane to an unshakeable new financial world. Basically, the effects of 2008 are with us – hard to shake – and regulatory measures are even more justifiable now.
Dissecting Mottos
In a basic form, the sales pitches of popular investment slogans are being questioned or being digested. Those fed up with paper assets and those clinging onto unfavorable views of the Federal Reserve's plan concluded that owning gold might be one safer answer. Of course, one glaring advertisement for gold lies in its past performance. Simply, it’s visible in its 12-year chart, demonstrating an eye-catching upward slide. Re-runs of that advertisement can get a crowd excited. Yet gold this year is up only 1%, reflecting a sluggish near-term performance and testing the will of commodity supporters. Again, just because central banks are buying to diversify their currency position is no guarantee for gold to skyrocket above $2500. Nor should waning stock and global growth issues spur an audience to turn to other alternative options.
Growth search
For a while, advisors remind us of the historical performance of the last decade, in which emerging markets vastly outperformed established markets. Clearly, for a while this so-called structural shift became fashionable and real in some respects. Mainly, this mindset created momentum in emerging markets, and drove plenty of folks to “chase the money” by owning possessions in China and other nations. Now this thought is not rosy, as recent headline outcomes continue to reconfirm the slowdown:
“China reported its industrial production rose 9.3 percent from a year earlier in April, below expectations and down from nearly 12 percent in March. ….India's industrial output fell 3.5 percent in March from a year earlier on weak manufacturing and investment. Output for the fiscal year ending in March rose 2.8 percent, down from 8.2 percent the year before.” (Associated Press, May 11, 2012)
Meanwhile, the classic textbook investment suggests that US Treasuries remain a barometer for risk-free rates. So far it has been the symbol of risk aversion, but on a basic level the returns are unappealing. Now yields are less than 2%, around all-time lows, as showcased for weeks, especially in a period where shelter is hard to find. Plenty of managers would rather give up higher returns for the comfort of perceived safety. This song and dance at some point has to end or take a new shape. The thought of safety may turn into a liability for those planning ahead. Perhaps, that’s the message from recent patterns in gold, emerging markets and US Treasuries. Soon we will have a better confirmation
Through all this, the lack of investment options may require investors to engage in further risk taking to meet desirable hurdles. For now, the near-term emphasis is highly focused on a barrage of worries. Yet, selective buying in US stocks and less discovered emerging markets may prove fruitful a year or so from now.
Article Quotes:
“US-based public pension funds constitute one of the most prominent institutional investor segments investing in real estate. The aggregate assets under management held by US public pensions that are active in real estate is over USD 3 trillion, with the average real estate allocation amounting to 6.3% of total assets, below the 8% average target allocation of this group of investors. Fifty-seven percent of public pension funds based in the US that invest in real estate have assets under management of below USD 1 billion; a further 28% have assets of between USD 1 billion and USD 9.99 billion. Eleven percent have total assets of USD 10-49.99 billion. Five percent have total assets of USD 50 billion or more. Seventy-three percent of US public pension funds that invest in real estate have a real estate allocation of less than USD 250 million.” (Preqin, May 2, 2012)
“In the face of the overwhelming demographic facts, Greece and Wisconsin will have to shed their antiquated notions of work and retirement. … Even if you believe in the economic promise of austerity, there are simply no cost-cutting measures to buoy an economy with one-third of the people retired and a sub-replacement birth rate. If we can begin to integrate our aging population into economic life, the payoff would be two-fold. First, it would stop the bleeding brought about by bygone retirement schemes and entitlements. Second, it would add GDP to the economy by growing the skilled workforce. Sure, the workplace of today is far different than it was 20 and even 10 years ago – but this can’t be an excuse to marginalize the aging. Instead, the older population is Greece’s and the world’s greatest hope for economic growth and recovery; and this group has decades of experience and expertise to offer. Throughout Europe, the story is much the same. Only Turkey, France, and Ireland have birth rates over 2.0, and the average old-age dependency ratio in Europe is 25 to 100; it will climb to 47 to 100 by 2050. “ (The Fiscal Times, May 11, 2012)
Levels:
S&P 500 Index [1353.69] – Attempting to hold 1350, as the index is below its 50-day moving average.
Crude [$96.13] – Barely holding on above $96, as the decline continues. The recent sharp fall is stimulated by higher inventory than expected; plus, slowing global demand triggers an inevitable downside action.
Gold [$1583] – A drop below the $1600 is eye grabbing in one view. Interestingly, the recent lows stood at $1531 on December 29, 2011. Now, enthusiasm is waning but buyers seeking a bargain might dabble. Yet this downtrend is hard to ignore.
DXY – US Dollar Index [79.19] – Since May 6, 2011, the index has managed to rise by 10%. Although not glaringly noticeable, a strengthening dollar is quietly and slowly brewing. Index is up 10 days in a row, making a noteworthy macro statement.
US 10 Year Treasury Yields [1.83%] – All-time lows are not too far at 1.67% and the downtrend pressures looms larger.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
Replaying
Reminiscent of last year, old worries are mounting and new grim facts untangle while fresh sets of discoveries enhance the existing suspense. Fragile attempts at European stability resurface while US business leaders scramble to instill trust as politicians and regulars attempt to deliver a plan for the impatient crowd. From Spain’s nationalization of banks to powerful election results in Europe, collective emotions are flaring. All in all, tension is back again and for market followers the script is becoming too familiar.
Amazingly, numbers find a way to fasinate observers – at least on a simple year-to-year comparision. Strange as it may be, on May 2, 2011, the S&P 500 Index peaked at 1370. Today it’s holding at a delicate range around 1350, leaving buyers and sellers to haggle for the next move. Of course, history does not always repeat itself in the same exact form – at lease we’d like to think so. Similarly, one can glance at the volaitlity index which peaked around 20 last May. Today, the expected fear barrmoter stands around 19.89 as of the end of last Friday. Not quite extreme fear levels, but quite reflective of a sensitive crowd that’s anxiously dealing with known problems but unknown consequences heading into the summer months.
Loss confronted
Against this big-picture backdrop, perhaps last week was not an ideal time to announce the loss of $2 billion dollars, especially for a “risk management expert.” Certainly, these days, there is no mercy for banks admitting fault when the overall climate is increasingly edgy. Unforgiving crowds continue to emerge as a theme that’s visible in voters and investors alike. Basically, the vote of confidence in the existing system is not producing a thrilling response. However, for executives of public companies, it may not be a bad time to dump all bad news in a jittery environment. Piling onto the pot of bad news is one strategy as less pleasant news becomes somewhat of the norm. Thus, discovering a bank loss or lack of control quickly takes us back down memory lane to an unshakeable new financial world. Basically, the effects of 2008 are with us – hard to shake – and regulatory measures are even more justifiable now.
Dissecting Mottos
In a basic form, the sales pitches of popular investment slogans are being questioned or being digested. Those fed up with paper assets and those clinging onto unfavorable views of the Federal Reserve's plan concluded that owning gold might be one safer answer. Of course, one glaring advertisement for gold lies in its past performance. Simply, it’s visible in its 12-year chart, demonstrating an eye-catching upward slide. Re-runs of that advertisement can get a crowd excited. Yet gold this year is up only 1%, reflecting a sluggish near-term performance and testing the will of commodity supporters. Again, just because central banks are buying to diversify their currency position is no guarantee for gold to skyrocket above $2500. Nor should waning stock and global growth issues spur an audience to turn to other alternative options.
Growth search
For a while, advisors remind us of the historical performance of the last decade, in which emerging markets vastly outperformed established markets. Clearly, for a while this so-called structural shift became fashionable and real in some respects. Mainly, this mindset created momentum in emerging markets, and drove plenty of folks to “chase the money” by owning possessions in China and other nations. Now this thought is not rosy, as recent headline outcomes continue to reconfirm the slowdown:
“China reported its industrial production rose 9.3 percent from a year earlier in April, below expectations and down from nearly 12 percent in March. ….India's industrial output fell 3.5 percent in March from a year earlier on weak manufacturing and investment. Output for the fiscal year ending in March rose 2.8 percent, down from 8.2 percent the year before.” (Associated Press, May 11, 2012)
Meanwhile, the classic textbook investment suggests that US Treasuries remain a barometer for risk-free rates. So far it has been the symbol of risk aversion, but on a basic level the returns are unappealing. Now yields are less than 2%, around all-time lows, as showcased for weeks, especially in a period where shelter is hard to find. Plenty of managers would rather give up higher returns for the comfort of perceived safety. This song and dance at some point has to end or take a new shape. The thought of safety may turn into a liability for those planning ahead. Perhaps, that’s the message from recent patterns in gold, emerging markets and US Treasuries. Soon we will have a better confirmation
Through all this, the lack of investment options may require investors to engage in further risk taking to meet desirable hurdles. For now, the near-term emphasis is highly focused on a barrage of worries. Yet, selective buying in US stocks and less discovered emerging markets may prove fruitful a year or so from now.
Article Quotes:
“US-based public pension funds constitute one of the most prominent institutional investor segments investing in real estate. The aggregate assets under management held by US public pensions that are active in real estate is over USD 3 trillion, with the average real estate allocation amounting to 6.3% of total assets, below the 8% average target allocation of this group of investors. Fifty-seven percent of public pension funds based in the US that invest in real estate have assets under management of below USD 1 billion; a further 28% have assets of between USD 1 billion and USD 9.99 billion. Eleven percent have total assets of USD 10-49.99 billion. Five percent have total assets of USD 50 billion or more. Seventy-three percent of US public pension funds that invest in real estate have a real estate allocation of less than USD 250 million.” (Preqin, May 2, 2012)
“In the face of the overwhelming demographic facts, Greece and Wisconsin will have to shed their antiquated notions of work and retirement. … Even if you believe in the economic promise of austerity, there are simply no cost-cutting measures to buoy an economy with one-third of the people retired and a sub-replacement birth rate. If we can begin to integrate our aging population into economic life, the payoff would be two-fold. First, it would stop the bleeding brought about by bygone retirement schemes and entitlements. Second, it would add GDP to the economy by growing the skilled workforce. Sure, the workplace of today is far different than it was 20 and even 10 years ago – but this can’t be an excuse to marginalize the aging. Instead, the older population is Greece’s and the world’s greatest hope for economic growth and recovery; and this group has decades of experience and expertise to offer. Throughout Europe, the story is much the same. Only Turkey, France, and Ireland have birth rates over 2.0, and the average old-age dependency ratio in Europe is 25 to 100; it will climb to 47 to 100 by 2050. “ (The Fiscal Times, May 11, 2012)
Levels:
S&P 500 Index [1353.69] – Attempting to hold 1350, as the index is below its 50-day moving average.
Crude [$96.13] – Barely holding on above $96, as the decline continues. The recent sharp fall is stimulated by higher inventory than expected; plus, slowing global demand triggers an inevitable downside action.
Gold [$1583] – A drop below the $1600 is eye grabbing in one view. Interestingly, the recent lows stood at $1531 on December 29, 2011. Now, enthusiasm is waning but buyers seeking a bargain might dabble. Yet this downtrend is hard to ignore.
DXY – US Dollar Index [79.19] – Since May 6, 2011, the index has managed to rise by 10%. Although not glaringly noticeable, a strengthening dollar is quietly and slowly brewing. Index is up 10 days in a row, making a noteworthy macro statement.
US 10 Year Treasury Yields [1.83%] – All-time lows are not too far at 1.67% and the downtrend pressures looms larger.
http://markettakers.blogspot.com
Dear Readers:
The positions and strategies discussed on MarketTakers are offered for entertainment purposes only, and they are in no way intended to serve as personal investing advice. Readers should not make any investment decisions without first conducting their own, thorough due diligence. Readers should assume that the editor holds a position in any securities discussed, recommended, or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any Publish Post, considered liable for the future investment performance of any securities or strategies discussed
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