Summer’s over, the kids are back at school, traders have finally returned from the beaches, bringing some sand and trading volume back to the markets. Our friend volatility, whom many were hoping had only rented a summer share, appears to have extended his vacation plans. As far as we can tell, he may be staying on for the unforseen future.
By the numbers, it was quite the strong week, with most asset classes rallying. Only only US Investment grade corporate bonds (down 0.7%) and the Dollar and US Treasuries slipping (both off 0.4%). Most other assets rallied: The Dow Industrials enjoyed their best week since April, charging ahead 2.5%. The Friday close puts it less than 4% away from its all time record highs. The S&P500 was in the green most of the week, adding 2.1%. nasdaq, which has been looking better than the SPX as of late, added 1.4%, while the Russell 2000 gained 1%.
The bigger gainers were elsewhere: Crude Oil gushed up 3.1% for the week, breaking $80 and setting nominal all time highs. Commodity futures also added over 3%. REITs added 2.9%, while Gold tacked on 1.3%.
Since the July 19 highs, the Dow lost 1,500 points (intra-day peak to trough), and as fibonacci fans are wont to point out, has since recovered two thirds of those points. Thus, we have a fairly well defined 1000 point trading range. Your guess is as good as mine as to which way the markets will eventually break out. If you are a glass is half full kinda guy, then you may look at valuations and profits and bet on the upside; If you see the glass as half emptied, then the weak consumer spending data, Non-farm payrolls and housing situation may make you bet on the downside. Verily, the bull bear battle is well defined.
The above helps to explain the bind the Fed is in:
Dow near record highs, and big gains in commodities means that Inflation remains an issue. That’s why I harbor strong doubts about a half point cut.
Barron’s Trader column noted:
"Rate-cut hopes lifted stocks last week, and the market recouped all the losses suffered Sept. 7, when a shocking government report showed employers cutting payrolls last month for the first time in four years. Treasury yields stabilized, as the lunge for the safety of bonds slowed. And as the heavy selling of mid-August receded, the market caught up on its bull-market habits, with takeover chatter circling Build a Bear Workshop (BBW) and the billionaire investor Carl Icahn boosting his stake in BEA Systems (BEAS) and angling for a sale."
I’m in Las Vegas this weekend (1st time!) for the Forex Currency show — and time’s awastin. Let’s get busy:
INVESTING & TRADING
• Blue Chips Record Best Week Since April Despite Oil’s Rise: The credit squeeze and concerns about the economy slipped into the background as stocks had their best week in nearly five months. The rise came despite an increase in oil prices, which rose 3.1% for the week to $79.10 a barrel, after hitting an exchange record of $80.09 on Thursday. Higher energy prices are usually bad news for stocks because they cut into consumer spending and corporate profits. (Wall Street Journal)
• Bernanke’s Fed has Changed the Rules and the Tools: It is important to understand that the Bernanke Fed has approached its role in a different way than the Greenspan Fed. Too much TV rhetoric is consumed on harangue in this area and not enough on the distinctions that we have seen in the last month. The enhanced Fed policy approach evidenced in the last few weeks could have been more transparent. This is a valid criticism of the Fed. Its spokespersons could be more forthcoming in explaining its mechanics and activities to a thirsting audience. The Fed knows that 6% of our nation’s employment and about 1/4 of the profits of America’s publicly owned companies come from the financial sector. That is where Main Street meets Wall Street. That’s why the Fed must explain its changes in mechanics. We expect that the Fed will show more transparency in the future. Q & A after Fed persons speak is one ways to do it. Chairman Bernanke could allow himself to take questions after his remarks. At the ECB this is routine. If he does not, Congress will most assuredly be asking them. (Cumberland Advisors) see also Would Fed rate cut help? (Baltimore Sun)
• Gold (CMX): Demand is usually weakest in Northern Hemisphere summer, especially August when European jewelry manufacturers are essentially shut down. Demand is greatest going into fourth quarter, during which consumption is highest as gift-giving peaks beginning with Indian harvest and wedding festivals in autumn and carrying through US religious holidays and Chinese new year. (Spectrum Commodities)
• Oil Rises to Record $80.18 on Larger-Than-Expected Supply Drop: Crude oil rose to a record $80.18 a
barrel in New York after supplies dropped the most this year. U.S. oil inventories fell a greater-than-expected 7.01
million barrels to 322.6 million last week, the Energy Department
said today. Prices also rose after OPEC said yesterday it would
increase production by 500,000 barrels a day, less than is needed
to meet a seasonal rise in demand. (Bloomberg) see also Dollar Hits Fresh Low Against Euro.
• There’s another fine myth laid to rest It’s the Fees, not the Profits: Private-equity firms say they are experts at wringing profits out of flagging businesses. It turns out they are almost twice as good at wringing fees out of their investors. This finding — part of a study by two professors at the University of Pennsylvania’s Wharton School — upends one of the deepest-held notions about the buyout business: The bulk of the average private-equity firm’s earnings come from profitably refashioning and reselling the businesses it buys. (Wall Street Journal) So much for the vaunted model of finding value and extracting efficiency!
• Holy Shnikes! Paulson Hedge Fund ‘Trounced’ Competitors; Goldman Fund Falls 16%:
The Paulson Credit Opportunities Fund gained 303 percent this year as
of July 31, according to investors. Dallas-based Hayman Capital
Partners Subprime Credit Strategies Fund has done even better, climbing
305 percent. "Hedge funds are well positioned to take advantage of the
wide price disparities caused by volatility,” said Mathieu Klein,
chief executive officer of Paris-based investment adviser Darius
Capital Partners. "There are many opportunities created by this
• Hedge Fund Managers March on Washington: Demanding further intervention from the Federal Reserve to protect their endangered fortunes, thousands of the nation’s leading hedge fund managers marched on Washington. Dubbed “The Million Mercedes March,” the protest was said to be the largest chauffeur-driven demonstration in the capital’s history.
The Wall of worry continues to build:
• Wall Street Borrows, Main Street Pays:
SAVED AGAIN BY THE FED! The market’s rebound at the end of August was
strong enough to overcome the severe weakness of the early part of the
month.What can we learn from the market meltdown, and what policies
should we follow now?The collapse of the equity market last month has
been blamed on "model misbehavior" in highly-leveraged quant funds. As
variances from expected behavior developed, the funds incurred losses,
which led to hurried deleveraging, as mandated by risk controls. Long
positions were sold and shorts covered to shrink funds’ balance sheets
and sidestep further risk. As most of the quant funds had broadly
similar portfolios, the process fed on itself — one firm’s problems
spread to another, which spread to another, and so on. (Barron’s)
• Alistair Darling attacks banks’ reckless lending: Alistair Darling, the Chancellor, today launches an attack on banks for lending too freely and allowing consumer debt to spiral to record levels. Alistair Darling says the key is to make the system ‘more open and transparent.’People should consider the consequences more carefully before signing up to loan deals, he says. His remarks will be seen as a watershed, marking the end of the credit boom that has characterised most of Labour’s decade in office. (Telegraph)
• Double Warning That a Recession May Be on the Way:
THE employment statistics and the bond market are combining to send out
a warning that has been heard only rarely in the past two decades: A
recession is coming in the United States. (New York Times) see also Economic fears sharpened
• Former Federal Reserve Chairman Alan Greenspan gives a withering critique of Republicans in his memoir, saying they deserved to lose power for forsaking fiscal discipline. (free WSJ)
• I Think You’re Fat: This story is about something called Radical Honesty. It may change your life. (But honestly, we don’t really care.)
• Iraq poll September 2007 (BBC)
TECHNOLOGY & SCIENCE
• Plug for Google Software:
Technology consultancy Capgemini will begin recommending Google Inc.’s
online suite of office software to its corporate customers, a move that
could bolster the Internet search leader’s effort to drum up more sales
to big business
• Fair Use Economy Represents One-Sixth of U.S. GDP:
Fair Use exceptions to U.S. copyright laws are responsible for more
than $4.5 trillion in annual revenue for the United States, according
to the findings of an unprecedented economic study released today.
According to the study commissioned by the Computer and Communications
Industry Association (CCIA) and conducted in accordance with a World
Intellectual Property Organization methodology, companies benefiting
from limitations on copyright-holders’ exclusive rights, such as “fair
use” – generate substantial revenue, employ millions of workers, and,
in 2006, represented one-sixth of total U.S. GDP. (CCIA)
MUSIC BOOKS MOVIES TV FUN!
• Greenspan’s book, The Age of Turbulence, gets released Monday. Both the WSJ and the NYT note that Greenpan wrote a "withering critique" of the Bush White House’s economic policies and approaches. See also is Jack McHugh on Greenspan’s Legacy
• 60 Minutes has an extensive interview with Greenspan Sunday night, and he will be the subject of a Newsweek cover story next week — they are excerpting the book, with Dan Gross conducting a long interview with "the Maestro."
That’s all from the mathematically challenged mountain desert of Las Vegas, where most people seem to only be able to do the math of the all-you-can-eat buffett, but not at the gaming tables. (Holy cow, I thought I was a fat slob!).