Man, is it just me, or has this summer gotten progressively whackier with each passing week? This was another roller coaster ride, where the final tally belies the underlying action.
By the numbers,there were two big winners: Emerging markets popped for 4.5%, and Crude Oil gained 4.1%. European stocks and emerging market bonds also gained, tacking on 1.5% and 1.0% respectively. REITs, Global stocks, the Nasdaq, commodity futures, Gold, US Treasuries, Corporates and Junk bonds all gained less than 1.0%, while the US dollar finished the week unchanged.
The Dow slipped 0.2%, the S&P500 lost 0.4%, while the Russell2000 brought up the year, down 0.8%. All things considered, the losses were rather tame, given the week’s mayhem.
Barron’s Trader column points out that:
"How profits hold up in the wake of tightening credit will determine stocks’ trajectory this fall. "Neither a significant margin squeeze nor a recession is in the price," says Morgan Stanley’s chief U.S. economist, Richard Berner. So "the extent of earnings disappointment will matter."
Its a long holiday weekend, and I know you have beaches and barbecues to get to. Let’s get busy:
INVESTING & TRADING
• Fed to Weigh Markets Turmoil: The Fed won’t bail investors out of their bad decisions but will act if market turmoil threatens economic growth, Bernanke said. Mr. Bernanke’s much-anticipated speech solidified investor expectations the Fed will cut its target for the federal-funds rate — charged on overnight loans between banks — from 5.25% when policy makers meet Sept. 18. Markets see some probability the rate will drop to 4.75% but several economists said a drop to 5% is more likely, accompanied by a statement suggesting more cuts could come. Those expectations helped boost stocks. (Wall Street Journal) See also Economists react to the Fed Chair’s speech.
• Barron’s, The Economist, and I all saw yesterday’s White House Rose Garden address as a political, and not economic event:
–Bailout Bandwagon (Barron’s)
–Help with the mortgage (The Economist)
–Major Policy Shift — or Politics as Usual? (lil ole me)• When Bulls and Bears Act Unruly on a Seesaw: Does it make sense for stock prices to plunge one day and soar the next, with little in the way of new information to explain either move? Maybe not, but it happened this week, just as it did earlier in August. It was the first time in more than four years that the American stock market experienced such wild swings, and could be a harbinger of a reversal of direction in either the stock market or the economy, or both.Or it could just show that changes in the financial system have left many investors confused about what is going on. (New York Times)
• How deos this recent correction compare to prior action? A Historical Perspective of Recent Bear Markets
• Tech — That’s Right, Tech — Is the New Haven: CRISIS? I DON’T SEE NO STINKIN’ CRISIS. Oh, I understand that the rest of you, in Manhattan, and Washington and Dubuque, you all seem to be having trouble with these subprime mortgage thingamajigs. But out here in Silicon Valley where the geeks, nerds, coders and billionaires live, I simply can’t find any signs of a crisis at all.I mean, have you looked at the big-cap tech stocks lately?
• The Ongoing Impact of the Housing Sector
• Top 25 Quotes on the Credit Crisis of ’07: The financial market globally is up to its elbows in one of the strangest and most complicated credit crises in history. Events have come in rapid succession with mind-numbing effect. No sooner does the dust settle in one part of the market than it is kicked up in another. Through it all, the reactions on the part of the participants have been the stuff of a good financial thriller.
• A look at Market Breadth – Sector A/D Lines
• Why balance sheets are not in good shape: One frequent claim used to calm fears in the recent market turmoil has been that "corporate balance sheets are in good shape". Judging from the published accounts of companies the claim is justified; judging from national accounts it is not. This marked divergence depends on the different conventions used. In broad terms, national accounts assume that assets are worth their cost of production, adjusted for inflation, after a deduction for depreciation, while corporate accounts seek to allow for market prices whenever -possible. (FT)
• Real Money’s David Merkel on how The Liquidity Noose Tightens
• Further fiasco:
A supposedly conservative bond fund managed by the investment arm of
State Street Corp. lost more than a third of its value in a matter of
weeks amid the turmoil in credit markets this month, according to an
investor who has seen the returns. The State Street Limited Duration
Bond Fund, which managed $1.4 billion for institutional clients, lost
about 37 percent of its value during the first three weeks of August,
according to the investor. The fund, managed by State Street Global
Advisors, had fallen 42 percent for the year by Aug. 21, the investor
said. (Boston Globe)
ECONOMY
The Wall of worry continues to build:
• Wages Up in China as Young Workers Grow Scarce: Chinese wages are on the rise. No reliable figures for average wages exist; the government’s economic data are notably unreliable. But factory owners and experts who monitor the nation’s labor market say that businesses are having a hard time finding able-bodied workers and are having to pay the workers they can find more money.And higher wages in China are likely to lead to higher prices in the United States — at the mall, at the grocery, even at the gas pump. (New York Times) See also: India’s Economic Growth Accelerates, Pressuring Rates
• Labor Picture Is Clouded: The Situation: Employment of temporary workers has
dropped for the last six months, driven by lower demand for office and
industrial workers. Use of temps is often viewed as a
leading indicator for the overall job market, as companies cut temps before
full-time workers on their payrolls. The U.S. job market might be on the
verge of softening further, but lately the overall job market hasn’t directly
followed the temp market. (Wall Street Journal)• "Capitalism without Financial Failure is Not Capitalism at All"
• Bernanke Opts for Tough Love and Targeted Cure: You’ve got to hand it to Ben Bernanke, who stepped into some oversized, perhaps overrated shoes when he succeeded Alan Greenspan as Federal Reserve chairman in early 2006.In some circles, the Princeton prof was considered too naive for the task. An academic for most of his career, Bernanke studied and wrote about the Great Depression, which is a lot different from steering the economy through one or walking financial markets back from the brink. (Bloomberg)
WAR/MEDIA/POLITICS/ENERGY
• Watching Matt Drudge:
He hides, but craves attention. He is prurient and prudish, powerful
and paranoid, an icon of the right who seems obsessed with making
Hillary Clinton our next president. And he has America caught in the
grip of his contradictions. (New York Magazine)• The other side of carbon trading: Planting trees in Mount Elgon National Park in eastern Uganda seemed like a project that would benefit everyone. The Face Foundation, a nonprofit group established by Dutch power companies, would receive carbon credits for reforesting the park’s perimeter. It would then sell the credits to airline passengers wanting to offset their emissions, reinvesting the revenues in further tree planting. The air would be cleaner, travelers would feel less guilty and Ugandans would get a larger park. But to the farmers who once lived just inside the park, the project has been anything but a boon. They have been fighting to get their land back since being evicted in the early 1990s and have pressed their case with lawsuits. (Fortune)
• More than 1,800 Iraqis killed in August:
Civilian deaths rose slightly in August as a huge suicide attack in the
north two weeks ago offset security gains elsewhere, making it the
second deadliest month for Iraqis since the U.S. troop buildup began,
according to figures compiled Saturday by The Associated
Press.ADVERTISEMENTU.S. deaths remained well below figures from last
winter when the U.S began dispatching 30,000 additional troops to Iraq.
(Associated Press)
• Alberto Gonzales Fall From Grace (The Economist)
TECHNOLOGY & SCIENCE
• Inside the Googleplex: IN AMERICA a phenomenon might claim to have entered mainstream culture only after it has been satirised on “The Simpsons”. Google has had that honour, and in a telling way. Marge Simpson types her name into Google’s search engine and is amazed to get 629,000 results. (“And all this time I thought ‘googling yourself’ meant the other thing.”) She then looks up her house on Google Maps, goes to “satellite view” and zooms in. To her horror, she sees Homer lying naked in a hammock outside. “Everyone can see you; get inside,” she yells out of the window, and the fumbling proceeds from there.
(The Economist)
• Japan’s Warp-Speed Ride to Internet Future:
Americans invented the Internet, but the Japanese are running away with
it. Broadband service here is eight to 30 times as fast as in the
United States — and considerably cheaper. Japan has the world’s
fastest Internet connections, delivering more data at a lower cost than
anywhere else, recent studies show. (Washington Post)• Still waiting for your Flying Car? Its almost here (BBC)
• Bird flu can be transmitted between humans: Researchers have now proven that bird flu has finally mutated and can be transmitted from person to person. The outbreak occurred in 2006 in Indonesia.Experts at Fred Hutchinson Cancer Research center in Seattle used statistical analysis and a computerized disease-transmission model to show the disease spread between a small number of people in one family (KING5.com)
MUSIC BOOKS MOVIES TV FUN!• I have a few interesting ideas about some books you are going to want to read this fall. Expect an interesting announcement here next week!
• RIAA v. The People: Four Years Later (Electronic Frontier Foundation)
• In last week’s fest, a NYMag article noted the
score from Terry Gilliam’s "Brazil" was showing up everywhere. Several reades pointed out that the theme is not Michael Kamen’s creation, but
rather an adaptation of Tommy Dorsey’s "Brazil", which you can
enjoy here:• Partial Face Transplants Pictures Gallery: Amusingly photoshopped combinations of celebrity faces.
The weather looks to be utterly gorgeous all weekend, so I will be taking the XSR48 out to enjoy the surf and waves! Have a great holiday weekend!
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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.
1/ Percentage-wise the ‘big’ market fluctuations are bringing us back to normal. It was the negligible changes in the indexes in the past that were abnormal.
2/ China (unlike the US which has a fertility rate of 2.1 children/female) is going to continue to have problems with young workers (Hong Kong has 0.8 fertility rate). Anybody anticipating China being the next world power has got ot explain how all those walkers are going to fit in their fighter planes
They say that books written by Ayn Rand on on the rise….
The current “bail-out” suggestions for this country’s “Mortgage Disaster” affecting new homeowners purchasing homes they could not afford and lenders who “knew and assisted them” – should me made whole. The Lenders handled these mortgages like “hot potatoes.” They packaged these mortgages, into investment vehicles and sold them to unsuspecting investors looking for “just a little more” interest return on their investments.The original lenders walked away with dollars(profits) free and clear of the problem. The new home owners are waiting to be helped by the government assistance in forgiveness of a good part of the debt they could not afford in the beginning. Looping the entire fiasco – the government will take the bite for the original lenders walking away with taxpayers money.
Ayn Rand:
Conscious and individual life, she believed, formed the standard of all values, and “rational selfishness” was a living being’s appropriate motive. In addition, Rand advocated laissez-faire capitalism as the only truly moral economic system.
The traditional American values of individualism, self-reliance, self-discipline, and hard work had their roots, in part, in the fact that this country began as a frontier nation where nothing was given and everything had to be created. To be sure, most Americans exhibited a strong sense of community, and they certainly practiced mutual aid. But this was not seen as a substitute for self-responsibility. Independent people helped one another when they could, but everyone was expected to carry his or her own weight. People were not encouraged to believe they enjoyed special “entitlements.”
The Following is one example:
If a man wanted to be a farmer, the fact that his farm could not support itself need not be an impediment: Agricultural subsidies could make his desire attainable. The Man, as a farmer, was allowed the right not to fail in a free market – and became supported by the government for decades.
This concept along with others formed – what Ayn Rand called “Objectivism.” There were and are many off shoots – but they have (in my opinion) been led off by followers intentions of becoming the major focus of a concept (the new leader of a concept, if you will.) Objectivism is not Libertarianism – although the followers of the latter, would like you to believe it.
Our Capitalist society – Good and Bad – is at a major crossroad – as a result of Government’s willingness and control of the concept of not allowing:
1. Home owners to take a loss on bad judgment
2. Banks, Investors and Other lenders – to get punished for greed
3. The Stock Market to go down from its highs – “The Plunge Protection Team”
Our Government is willing to increase it debt to protect everyone at some level especially those who profit from the markets mostly.
Folks, how does China keep its currency artificially low? I read that everywhere but don’t understand how the linkages work. Do they do it simply by buying our Treasuries? (How is that “manipulation”?)
I’ve been skeptical of the charge of currency “manipulation”, because it seems a bigger, simpler factor has been at work for their exports: everything is far cheaper over there, because decades of communism and trade barriers kept the value of their labor de-linked from the global marketplace. In other words, they weren’t competing for our jobs for decades and now they are. End of story (until their wages rise).
The “artificially low” statement sounds like propaganda. More “blame ‘them'” lingo for the — can I use this word here? — sheeple.
One way or another, real wages for Chinese workers should rise. Either because the currency rises or because the workers earn more. If there’s an artificial limit on currency appreciation but none on wages, then wages will rise. (They are.) But, wages are so far below ours, that it will be another 10(?) years before parity is reached — the gap is that far apart.
And, in order for their currency to rise relative to ours, doesn’t that mean they have to stop buying our Treasuries? What will happen to interest rates in this country if that happens? I suspect our “currency-manipulators!”-chanting leaders privately don’t want “currency manipulation” to end.
What am I missing (or have wrong) on this “manipulation” issue?