There were fireworks aplenty, considering this was such a lightly-traded, holiday week.The 1st week of the Quarter, which often sees redeployment of capital by fund managers, was not wanting for either drama or action.
The negatives were Yields, back over 5.1%, and crude oil, which rose 3% to nearly $73. The Bank of England lifted their
rates to 5.75%, sending all manner of bonds from treasuries to junk, downwards.
Yet the markets shook all that off, rising smartly for the week. The big winner was emerging markets stocks, up 4.4% for the week. The previous week’s loser, REITs, reversed themselves and gained 3.9%. Nasdaq gained 2.4%, with the Russell 2000 right behind it at +2.2%. The S&P500 and Dow tacked on 1.8% and 1.5% respectively. Commodities, Gold, and European stocks all were in the green for the week.
Barron’s Trader column noted:
"Without giving too much credence to a few quiet sessions, last week’s drift suggests, at the very least, that stocks’ path of least resistance remains upward. The percentage of New York Stock Exchange stocks above their 200-day moving averages hovers near a rather neutral 61%, well off February’s overwrought — and overbought — high of 86%.
The S&P 500 has hovered within a tight 3.5% range for more than two months, and bulls see that as a necessary "consolidation" before the next surge. But the direction of this liquidity-driven stock market continues to depend largely on debt-market cues, and bears brushed aside this latest flurry of private-equity deals as a dash to beat rising borrowing costs."
Later this week, Companies begin reporting Q2 earnings, and we’ll cover all that tomorrow. But today — 7/7/07 — brings our Lucky 7 Linkfest: Get clickin’!
INVESTING & TRADING
• Homeowners’ Woes Could Lift Blue Chips in Flight to Quality: Mounting mortgage defaults by American homeowners with sketchy credit could have one positive twist: a sustained rally by blue-chip stocks and bonds. That was a takeaway from last week’s annual Morningstar Inc. investment conference in Chicago, where top fund managers meet each year to share their thoughts on the markets. (free Wall Street Journal)
• Asia defies Shanghai’s big sell-off: Mainland Chinese stocks dropped sharply Thursday, while Hong Kong’s Hang Seng Index hit another peak and Japanese stocks rose for a sixth straight session. (MarketWatch)
• Blame the ‘Stock Vault’? Depository Trust & Clearing Corp. is a little-known institution in the nation’s stock markets with a seemingly straightforward job: It is the middleman that helps ensure delivery of shares to buyers and money to sellers.About 99% of the time, trades are completed without incident. But about 1% of the shares — valued at about $2.5 billion on a given a day — aren’t delivered to the buyer within the requisite three days, for one reason or another. These "failures to deliver" have put DTCC in the middle of a long-running fight over whether unscrupulous investors are driving down hundreds of small companies’ share prices At issue is a nefarious twist on short-selling, a legitimate practice that involves trying to profit on a stock’s falling price by selling borrowed shares in hopes of later replacing them with cheaper ones. The twist is known as "naked shorting" — selling shares without borrowing them. (free Wall Street Journal)
• Please Do Not Feed Bear Stearns: Dan Gross asks: Hey, how come that hedge fund got bailed out and I didn’t? Wall Street executives didn’t foreclose on the Bear Stearns hedge fund, which borrowed imprudently, because (1) the fund had a rich parent to bail it out, and (2) doing so would have imposed financial hardships on themselves, on their friends, customers, and neighbors. The residents of neighborhoods targeted by subprime lenders typically receive no such consideration. By stepping in, Bear Stearns averted a swift collapse for the subprime CDO market. But it seemed out of step with Wall Street’s prevailing sink-or-swim ethos…" (Slate)
• Inside Exchanges’ Race To Invent New Bets: Global derivatives trading on exchanges has grown nearly 30% a year on
average since 2001 to reach almost 12 billion contracts last year. The
value of exchange-traded financial derivatives measured by the Bank for
International Settlements is now about $87 trillion; that’s more than
double the value in 2003. Mr. Labuszewski’s exchange, known as the
Merc, surpassed the New York Stock Exchange in market value in 2003.
This all helps explain why exchanges are in a merger frenzy: They want
one another’s hot trading products. (Wall Street Journal)
• Yields Rise to a New Range The Treasury market reversed much of its rally of late June, which came in reaction to the problems in the illiquid market for collateralized debt obligations caused by the meltdown in subprime mortgages. Buyers staged the typical flight to quality as the woes hit a number of hedge funds, resulting in Bear Stearns’ bailing out one of its nominally independent namesake funds. (Barron’s)
• Taking stock of the year’s 10 main themes:
The first half of 2007 is officially in the books as we tee up the
other side of the hump. While the last few holes highlighted the
hazards of higher rates and subprime contagion , the scorecards were
fairly impressive as players finished the front nine. (Marketwatch)
• Coveting Thy Neighbor’s Equities: Where you live an who your neighbors are impacts the what equities are in your portfolio (Infectious Greed)
• Fidelity veteran warns about CDO risk: Anthony Bolton, the veteran Fidelity fund manager, has added his
voice to the growing chorus of warnings over the risks of complex
structured credit products. Mr Bolton on Tuesday likened
instruments such as collateralised debt obligations to the
split-capital investment trusts that led to losses for thousands of UK
investors in 2002 amid a stock market downturn. (FT)
The Wall of worry continues to build:
• The Econocator had a good round up of all the NFP commentary: The fishy payrolls report
• Output Bounce Brightens Growth Picture; Still-Lean Inventories Bode Well for Suppliers; Inflation Pressure Cools; Improvement in a key index of manufacturing activity for June bolstered expectations for healthy U.S. economic growth through the end of 2007, and Europe’s manufacturing sector showed similarly positive signs. The Institute for Supply Management said its index of manufacturing activity in the U.S. rose one point to 56.0 last month, the highest since April 2006. A level above 50 indicates manufacturing activity generally is expanding. (Wall Street Journal)
• Why I don’t buy the 4.5% Unemployment Rate
• Herb Greenberg asks "Is Wall Street Becoming Inured to Accounting Scandals?"
• Pending Home Sales Decline:
The National Association of Realtors’ index for pending sales of
existing homes decreased at a seasonally adjusted annual rate of 3.5%
to 97.7 from April’s 101.2, the industry group said Tuesday. Its index,
based on signed contracts for used homes, was 13.3% lower than the
level of 112.7 in May 2006. (AP)
• Taliban Spreading, Pakistani President Is Warned: The Pakistani president, Gen. Pervez Musharraf, was warned this month that Islamic militants and Taliban
fighters were rapidly spreading beyond the country’s lawless tribal
areas and that without a swift and decisive action, the growing
militancy could engulf the rest of the country. (New York Times)
• Real-life ‘Q’ working to thwart the bad guys:
From anti-missile drones that might one day hover over airports to
protect commercial airliners to behavior recognition technology that
could help agents recognize a person with ill intent, the projects are
all very high-tech, very hush-hush and, in some cases, very
far-fetched. Some of the projects being examined sound wildly
futuristic: hurricane mitigation technology that would stop storm
surges with strategically timed underwater blasts; cellphones outfitted
with tiny biological, chemical and radiation detectors; unmanned aerial
vehicles that could detect and deflect shoulder-fired missiles aimed at
commercial jets. (USA TODAY)
• Giuliani Support Hints at Shift: Don’t look for the party to make a sudden leap to the middle, or to
turn its back on its religious and social conservatives. But Mr.
Giuliani’s lead in the polls — and in the latest round of fund
raising, according to new reports Tuesday — may hint at the declining
clout of those voters and their issues within the Republican party, and
perhaps a shift back toward a more libertarian emphasis. (Wall Street Journal) See also Presidential Futures Market
TECHNOLOGY & SCIENCE
• The iPhone news blitz continues. Rather than rehash everything, here are the links I found most interesting:
–iPhone Breaks The Carrier Stranglehold (Information Week)
–iPhone Review: a Feature-by-Feature Breakdown
–Tear-a-part: iPhone broken down to its component parts
–iPhone Add-Ons and Third-Party Software
–Faster iPhone faster! Kill!! Kill!!"
• EBay Chief Spurs Growth on PayPal, Beats Google Unit: EBay Inc.’s Meg Whitman is doing what
most Internet chiefs can only dream of: She’s beating Google
Inc. in at least one corner of the Web. (Bloomberg)
• The 50 Who Matter Now Business 2.0 has compiled an unabashedly subjective list of people, products, trends, and ideas that are transforming the world of business. Warning: idiotically, this require you to click 50 times to see the entire list, instead of doing 5 or 10 large pages (click-whores!)
• Finding Out How Your Car Will Hold Up in a Crash: (free Wall Street Journal) also, yet another reason not to own a SUV: In Rear-End Crash Test, Most Trucks Fail to Stop Neck Injury
MUSIC BOOKS MOVIES TV FUN!
• Music Sales Fall for 7th Consecutive Year
• How to turn your boring movie into a Hitchcock thriller…
• Brad Bird, Animation Auteur: How the director of RATATOUILLE became the Stanley Kubrick of Animation
That’s all from what’s been a gorgeous week out on the East End of Long Island — and where recent connectivity problems means this is being beamed to you from a friendly neighborhood Starbucks!
Got a comment, suggestion, link idea? Or do you just have
something on your mind? The linkfest loves to get email! If you’ve got something to say, then by all means please do.
John Mauldin has written a tremendous piece on the subprime MBS/CDO collapse. The link is: http://www.safehaven.com/showarticle.cfm?id=7909
“Dan Gross asks: Hey, how come that hedge fund got bailed out and I didn’t?”
Come on, Dan, spit it out. Tell the truth: Wall Street is first and foremost about grift. Investment is just the cover, the con. Maybe in the old days things were different. Whatever.
There is a huge difference with the past financial crisis as this one is driven by the financial intermediaries and has not been fuelled by the private individuals whom are accidental casualties through intermediaries.
The real test of « value » as opposed to theoretical models come when markets assets prices for sale are coming across the theoretical assumptions.
The financial risk concentration has never been so concentrated within the financial intermediaries and a systemic risk probality among the financial intermediaries has never been so high.
Linkfest: Week in Preview
Yesterday, we looked at the week that was. Today, we preview the upcoming market events that may be stock and market movers. Its a relatively quiet week in terms of economic releases, backloaded for Friday: Retail Sales, Import/Export prices, and Consu…