Wow — another roller coaster of a week. The Dow only lost 0.6%, but that belies the topsy turvey week we just had. Credit woes frightened even the most ardent of Bulls — and just in time for the Fed meeting next week.
Indeed, the numbers don’t reveal the full story: Gold popped 1.9% on credit concerns, and an ever weakening dollar slipped further (-0.5%). After hitting a new 52 week high over $78, Crude oil closed down on the week by 2%. Fears of a closing credit window sent all manner of bonds higher, from Junk (1.0%) to Treasury (0.5%) to Emerging Markets (1.5%). Even REITs bounced a hair (0.1%).
On the equity side, European stocks slipped 0.2%, and emerging market stocks fell half a percentage point. The S&p500 gave up 1.8%, and the Nasdaq lost 2%. Once again, the Russell 2000 small caps were the biggest losers, sliding nearly 3%. For the year-to-date, the Dow remains up 5.8%, while the S&P500 is clinging to a 1% gain. The Russell 2000 has declined 4.1% year-to-date.
Barron’s Trader column quoted Doug Cliggott, chief investment officer of Dover Management, who observed: "We’re seeing a simple but extremely powerful deleveraging of the global markets."
Pour yourself a strong cup of joe — its that time:
INVESTING & TRADING
• Say hello to a world without cheap money: For the past five years big business has been hijacked by a crowd of smart financiers who, backed by cheap money, have bought and sold companies at their whim. But as the events of the past week have shown, the days of easy credit are over. The world’s big banks, which have made billions fuelling this boom, have called a halt. It has happened in the space of only a few weeks and the impact has hit global equity markets hard as companies whose shares had fizzed up on the back of takeover speculation have seen those gains wiped off. (UK Times)
• "The Fed is asleep. They know nothing. In the fixed income markets we have Armageddon. Cut the rate. Relieve the pressure…" A truly astonishing piece of video: Cramer Pleads for the Fed to Rescue the Markets on CNBC See also, Investors Page Greenspan; Doctor Isn’t on Call One good market regurgitation, and the 911 call goes out: Alan Greenspan, where are you when we need you? (Bloomberg)
• What’s up with gold?
You would have thought that it would do quite well, of course. It was a
week in which the stock market finally succumbed to the accumulated
weight of the mess in the subprime mortgage market a mess to which the
monetary authorities will inevitably respond by flooding the markets
with even more liquidity. (Marketwatch)
• I was of two minds about Wednesday’s 200 point rally the last 30 minutes of trading: That evening, I noted there were some technical reasons for the bounce. The next morning, I sumbled onto a perhaps more plausible explanation: Mystery Solved: Another Fat Thumbed Trader
• Bulging Profits in U.S. Often Originate Overseas: American companies have been very profitable in recent years — but not necessarily because of the American economy. Government estimates indicate that profits of companies operating in the United States — whether American or foreign — have risen at an average annual rate of 7 percent in the current decade. (New York Times) Also,Subprime Defaults Blamed for U.S. Earnings Setbacks: Railroads, chemical producers and
insurance companies are blaming the worst U.S. housing slump in 16
years for their earnings woes. (Bloomberg)
• Shame on Trimtabs Charles Bidermam!: Blaming the Retail Investor
• Funds that shake capitalist logic: In the last month we have seen government-controlled Chinese entities take the largest external stake (albeit non-voting) in Blackstone, a big private equity group that, indirectly through its holdings, is one of the largest employers in the US. The government of Qatar is seeking to gain control of J. Sainsbury, one of Britain’s largest supermarket chains. Gazprom, a Russian conglomerate in effect controlled by the Kremlin, has strategic interests in the energy sectors of a number of countries and even a stake in Airbus. Entities controlled by the governments of China and Singapore are offering to take a substantial stake in Barclays, giving it more heft in its effort to pull off the world’s largest banking merger, with ABN Amro. (FT)
• The Under-Taxed Kings of Private Equity: Princeton Economist Alan Blinder on the "arcane debate is raging in Congress over the appropriate taxation of the bountiful incomes of people who manage private-equity and hedge funds — incomes that can range into the hundreds of millions a year. I don’t recommend trying to master the details unless you have either an accounting degree or insomnia. But one thing is easy to understand, though hard to swallow: Some people who are richer than Croesus are paying 15 cents in federal income taxes on the marginal dollar, while you may be paying 25 or 35 cents." (New York Times) See also Bear, Lehman, Merrill, Goldman Traded as Junk, Derivatives Show
• An amusing Guide to Wall Street Lingo
The Wall of worry continues to build:
• How healthy is the economic engine? America’s economy is still dangerously dependent on its financially overstretched consumers. And those consumers—the real engine—may to be running out of fuel. Personal-consumption expenditures tend to fall in the second quarter as holiday spending winds down. But the drop this year was especially sharp; the rate of growth fell by 2.4 percentage points to 1.3%. (Economist)
• GM, Ford, Toyota, Honda Say U.S. Sales Fell in July: When the foreign autos have sale problems too, that means the US consumer is heading for trouble. See also Foreign Automakers Pass Detroit in Monthly Sales
• Driving Home the Responsibilities of a Policymaker: The President of the Federal Reserve Bank of St. Louis writes: I’ve often been asked why I chose the equation “MV–PT” as my car license plate number. (Missouri doesn’t provide for an “equals” sign on the license plate; so, I have a dash instead.) For those not familiar with the monetarist tradition in economics or its impact on central banking, my plates must seem a mystery. But for me, they represent a constant reminder of my duties and responsibilities as a policymaker, not to mention my profession. I’m sure that more than one economist has smiled when seeing this plate out on the road. (Others probably think it a cute reminder of a strong marriage between Maggie Violet and Peter Thomas. Nice to be part of the “in” crowd now, isn’t it?)
• Lenders Broaden Clampdown on Risky Mortgages Jittery home-mortgage lenders are cutting off credit or raising interest rates for a growing portion of Americans, extending well beyond the market for subprime loans for people with the weakest credit records. This worsening credit crunch threatens to put further pressure on the housing market, where prices are flat to declining in much of the country. (Wall Street Journal)
• U.S. Housing Is Among `Biggest Bubbles,’ Rogers Says
The U.S. subprime-market rout that wiped out $2.1 trillion from global
share values last week has “got a long way to go,” said Jim Rogers,
who predicted the start of the commodities rally in 1999.This week’s
rebound in equity markets hasn’t persuaded Rogers, 64, to pull out of
bets that U.S. investment banks and homebuilders are heading for
further declines.“This was one of the biggest bubbles we’ve ever had
in credit,” Rogers, chairman of New York-based Beeland Interests Inc.,
said in an interview from Hong Kong. “I have been and am still short
the investment bankers in America. I’m also short homebuilders.”
TECHNOLOGY & SCIENCE
• New Study: Top 50k blogs had $500 million in 2006 Revenue WTF? That’s an awfully big number — maybe potential revenue is more like it.
• Worries About the iPod’s ‘Maturity’ Miss the Point of Its Value to Apple (Wall Street Journal)
MUSIC BOOKS MOVIES TV FUN!
• Suddenly, Michael Panzner’s book Financial Armageddon: Protecting Your Future from Four Impending Catastrophes doesn’t look so far-fetched . . .
That’s all from the hot, sticky, disgusting, NorthEast, where, thanks to KeySpan Energy (KSE), this comes to you in Central Air-Conditioned comfort!