Mo’ money, mo’ volatility.
That was the story this wild week, when pretty much everything went up — excepting (of course) the US dollar, which slid half a percent.
Mo’ Money: The U.S. Federal Reserve on Thursday added a total $31 billion of temporary reserves to the banking system via repurchase agreements, its biggest daily open market injection in two weeks. The late Wednesday rally anticipating Thursday’s Fed repo action is starting to become predictable.
Mo’ volatility: Following last week’s harrowing Friday freefall of 366 Dow points, Monday opened ugly — a triple digit loss. Markets needed a break, which they got thanks to a reversal by day’s end. That broke a 5 day losing streak. Strong earnings from a few bellwethers (Apple and American Express) carried the positive action further on Tuesday for a triple digit gain. Wednesday saw even mo’ volatility, with intraday swings of more than 200 points. Microsoft’s strong earnings helped the Tech sector to finish on an upbeat note Friday.
By the numbers, the big winner was Crude Oil — up 5.6% for the week, and 51.2% for the past 52 weeks. Emerging markets gained 3.8% over the past 5 days, and are up an astonishing 61% for the prior 12 months. Nasdaq saw a 2.9% gain, while the Russell 2000 and REITs each added 2.8%. Gold garnered 2.6% in gains, edging out the S&P500 (+2.3%) and the Dow Industrials (+2.1%). Gold is up 31% for the prior year. Global stocks added 2%, an European stocks were up 0.8%.
Barron’s Trader column quotes Elliot Spar, who notes:
A few yellow flags from Friday’s advance: With the highflying Nasdaq a hair away from a new recovery high, the breadth of its advance was less than convincing, with two stocks retreating for every three that rallied.
Early Friday afternoon, roughly 97 Nasdaq stocks had made new highs as 105 made new lows. "Generals marching and troops retreating — not a healthy battlefield position," says Elliot Spar, Stifel Nicolaus’ market strategist. Negative divergences such as these tend to be "resolved with the market heading lower, not the divergences getting better," Spar notes.
More on that narrowness below.
Where ever shall we start? That’s easy this week: Technology! (Don’t worry, we got lots more) Get clickin’:
INVESTING & TRADING
• Tech Gets Its Groove Back: IT’S TAKEN SIX YEARS, BUT THE dot-com crash is receding in most investors’ rear-view mirrors. And the road ahead for the technology business, despite a few bumps, looks wide open and inviting. – For the first time since 2000, tech-heavy growth-oriented mutual funds saw an influx of money in August as buyers tried to catch up with a sector whose indexes have about doubled the Dow Jones Industrial Average’s 10% gain in the past 12 months. This year looks like just the second in the past seven in which tech returns will top the broad market’s performance. (Barron’s) see also Are we in "Bubble 2.0?"
• Simultaneous bull and bear markets Our man with the tan Doug Kass tells Barron’s Alan Abelson just how narrow the Nasdaq 100 advance has been this year (if no Barron’s go here)
• Jim Rogers Shifts Assets Out of Dollar to Buy Yuan: "I’m in the process of — I hope in the next few months —
getting all of my assets out of U.S. dollars,” said Rogers, 65,
who correctly predicted the commodities rally in 1999. "I’m
that pessimistic about what’s happening in the U.S.” Rogers, delivering a presentation late yesterday at an
investors’ meeting organized by ABN Amro Markets in Amsterdam,
said he expects the Chinese currency to quadruple in the next
decade and that he is holding on to commodities such as platinum,
gold, silver and palladium. (Bloomberg)• 1980s Parallels? Merrill Lynch’s two top strategists, David Rosenberg Richard Bernstein, both concur that the current backdrop is "highly reminiscent of the late-1980s cycle. While no two cycles are ever the same, some very similar patterns have emerged.
• Bullish bargain hunting from the inside: Despite some predictions to the contrary over this past weekend, Friday’s sharp market drop was not followed by more weakness on Monday or Tuesday. (Marketwatch)
• China pushes deeper into Africa: China has served notice it is accelerating its investment drive in Africa towards full throttle with the planned $5.4-billion cash purchase of a major stake in Standard Bank by Beijing’s biggest lender.China’s Industrial and Commercial Bank of China Ltd. (ICBC) said on Thursday it is to buy 20% of South Africa’s Standard Bank Group Ltd., the biggest foreign acquisition by a Chinese commercial bank yet. (Reuters)
• Should Merrill Lynch CEO Stanley O’Neal lose his job? (Slate)
• Skepticism Scarce in Countrywide’s Rally: IN A TOUCHING DISPLAY OF FAITH-BASED investing, Countrywide Financial’s debt and equity securities soared Friday despite dramatic evidence of mortgage- credit deterioration severe enough to induce the Federal Reserve to cut short-term interest rates again. Even though the company reported a $1.2 billion loss for the third quarter as a result of $3 billion of credit-related losses, its securities exploded higher. In the debt markets, the cost of insuring against default by the nation’s largest mortgage lender plunged an astounding 100 basis points, or one percentage point, to 377.5 basis points for its credit-default swaps. Yields on Countrywide’s bonds plunged as much as 40 basis points on the earnings news. (Barron’s)
• New Tools Arrive to Rate Mutual Funds, ETFs (WSJ)
• Who Needs Facebook? You got to hand it to Microsoft: This week, the Redmond, Calif., giant seemed to pull Facebook right out from under Google’s feet. But Google may have passed on the deal for a very good reason: The company may already have all the pieces it needs to patch together a homegrown social networking site–one that could even trump Facebook. (Forbes) see also Microsoft’s Facebook deal makes no sense
ECONOMY
The Wall of worry continues to build:
• Where was the Bubble: Houses, Rates or Credit? A bubble is a “trade in high volumes at prices that are considerably at variance
from intrinsic values." By that definition, I’m not so sure Housing was
a true bubble — the run up in prices, a doubling over the course of
about 7 years, was actually a rational market response to interest
rates being dropped to generational (46 year) lows. Credit, however . . .• Recession Meme Revisited: What can we tell from Google searches for the word Recession?
• TAX EVASION: The great lie of supply-side economics: (The New Yorker)
• This Time, Housing Is Taking Department Stores Down With It: When home builders’ stocks plunged in 2006, Wall Street was confident that the problems would not spill over into the larger economy. Exhibit A? Department store stocks rose steadily despite the housing woes. Not this time around. Housing stocks have fallen again — and this time the department store stocks have marched down with them. (New York Times)
HOUSING
• Mortgage Resets? Try Chapter 13 Bankruptcy! It turns out that Chapter 13 filings (as opposed to chapter 7) are gaining in popularity. It seems that more and more debtors are using the bankruptcy laws to keep their homes. Why? Because CH 13 halts foreclosure proceedings
• Did New Homes Sales actually rise? (Not Exactly) . . . So did New Homes Sales actually rise, as ws reported? Based on the data, we know for sure that
year-over-year sales decreased; However, month to month
sales may — or may not have — increased. According to the Commerce Department, we really just don’t know.• Home sales crater on credit squeeze: Sales of single-family homes at
10-year low; inventories highest in 20 years (MarketWatch)• U.S. Homeownership Falls in Longest Slide Since 1981: Homeownership in the U.S. dropped for a fourth consecutive quarter, the longest decline since at least 1981, suggesting more Americans will miss their best chance of building wealth.The proportion of households that own their residences fell to 68.1 percent in the July-September period from 68.3 percent in the prior three months, according to a report today from the Census Bureau in Washington, whose comparable records go back to 1981. The rate has been declining from a peak in 2004, which culminated a decade of gains fueled by easier lending standards and rising home purchases by immigrants and younger households. (Bloomberg)
• The UK Telegraph has a full section devoted to "America’s subprime mortgage crisis
WAR/MEDIA/POLITICS/ENERGY
• Rangel Proposes Cuts in Tax Overhaul: The broad attempt to revamp the tax code introduced yesterday by the House’s top tax writer could hurt oil and technology companies, manufacturing firms and others in order to fund an across-the-board cut in tax rates long sought by many corporations. The effort by Rep. Charles Rangel (D., N.Y.), chairman of the House tax committee, is a pairing of pain and relief for companies. Retailers could benefit under the plan, as could other firms now paying high effective tax rates. (free Wall Street Journal); see also A Tax Plan as Trial Run for ’09 Law
• Should newspaper Web sites really be free? (Slate)
• Bin Laden may have just escaped U.S. forces:
A little more than a month ago, with the anniversary of Sept. 11
approaching and fears of a new al Qaeda attack rising, some U.S.
intelligence and military analysts thought they had found one of the
world’s two most wanted men just where they last saw them six years ago
. . . (MSNBC)
TECHNOLOGY & SCIENCE
• NASA’s Predator UAV and Google Earth Join Forces to Fight Fires in California and NASA’s photos of SoCal’s fires from Earth orbit.
• Apple’s AT&T Bounty: $432 Per iPhone? (Silicon Alley Insider)
• Google’s plan to host ALL our applications: Here’s the grand plan: By working with IBM to promote cloud computing to universities, Google is accomplishing two very important goals. It will first put them in touch with every graduate student doing work Google might find interesting. So it is first a hiring tool. But by teaching students about cloud computing Google and IBM are also seeding the technology in the companies where those students will take their first jobs after graduation. Five years from now cloud computing will be ubiquitous primarily for this reason.But Google wants us to embrace not just cloud computing but Google’s version of cloud computing, the hooks for which will be in every modern operating system by mid-2009, spread not by Google but by a trusted open source vendor, MySQL AB. (Cringely) see also Google Changing the PageRank Algorithm?
• World-Wide Web Map, From .ad to .za
MUSIC BOOKS MOVIES TV FUN!• Weekend Swamp-Rock: John Fogerty: If you are a fan at all of Creedence Clearwater Revival and/or John Fogerty, then check out some of the tunes on Fogerty’s new disc Revival. (Funny how some artists sound so much like themselves)
That’s all from a very rainy weekend here in the NorthEast, where we have been perusing a short list of charities you can make donations to in Southern California post wildfires.
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The last word on supply-side economics can be found here: http://www.theonion.com/content/news/reaganomics_finally_trickles_down
RE:
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Mo’ Money: The U.S. Federal Reserve on Thursday added a total $31 billion of temporary reserves to the banking system via repurchase agreements, its biggest daily open market injection in two weeks.
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I don’t think that is right, BR. As you know, the fed has continuously expiring repos of 1, (3 of Fri), 7 and 14 day durations ) and if these expire without another one taking its place, that’s a withdrawal of funds. There is a website ( not mine ) that keeps track of the expiring repos, adds on any new ones created and thus creates a “SLOSH” report.
http://www.gmtfo.com/RepoReader/OMOps.aspx
I’ve done some sample sanity and desk checks of their ability to track expiring repos, the new adds and the resultant slosh and it all stacked. So, THIS Thursday, while they added $31B as you say, $40B expired/matured which totals to a net REDUCTION in the slosh by $9B.
If you don’t agree with the above statement, do please correct me. But if its true, then the rationale you present for the Wed. late afternoon rally has to be restated ( i.e. the traders THINK there is an injection even if there isn’t really one occurring).
-K
Barry-
With all due respect, if you’re thinkin it, just call it.
Here is the pertinent paragraph from the Reuter’s article on repurchase agreements:
“Federal funds were trading steady at 4.75 percent in the market after Thursday’s operations, matching the 4.75 percent target rate the Fed sets.”
This is the entire purpose of repurchase and purchase operations – to expand and contract reserves to keep rates as close to the target as possible.
Going into the last Fed meeting, the Fed had been signaling its rate cut a week in advance with these repurchase rates – the fact that they are holding now at the target does not bode well for a cut next week.
Mr. B/R:
Something I’ve learned from THE BIG PICTURE
about ‘the big picture’ is that $90 a bbl. oil is not viewed by the markets as a threat to the/our economy, whereas a serious push to reduce greenhouse gas emissions by a meaningful amount [40-80%] using current technologies is.
http://finance.yahoo.com/q/bc?s=%5ETNX&t=6m
Not over 4.95000…? Last close (no interim, no intra-day) for naught07?…
…We got game?
http://en.wikipedia.org/wiki/Chicken_suit
The Treasury Dept. says it buys-back bonds,
notes & bills (Blomberg 10/18/07) to
“help ensure a smooth functioning” of
the markets…But really, aren’t they
mostly just trying to off-set recent foriegn
[Asian C/B] sales and general dollar weakness?
pardon the typo(above)-it’s “Bloomberg”
Looks like they cook the books in Argentina, too:
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Another doubt in Argentina is over the official statistics the government uses to back up their claims that things are going well.
Scuffles outside the statistics institute in August
Anger over the way figures were being used boiled over in August
Even the workers at the government’s official statistics office, Indec, say their figures are manipulated to create the impression the economy is doing better than it really is.
They regularly hold demonstrations outside their Buenos Aires offices against what they say is government interference. The government, not surprisingly, denies this.
Economist Carlos Rodriguez Braun said: “The government is not trying to control inflation, it is only controlling the figures on inflation.”
—————————
http://news.bbc.co.uk/2/hi/americas/7050743.stm
This is a time series of historical data of US-currency in circulation:
http://research.stlouisfed.org/fred2/data/WCURCIR.txt
Currency in circulation has stayed about the same since July 2007, despite the rate cut in September. There hasn’t been any “massive injections” of liquidity by the Fed in recent months, contrary to what many people believe. If stock markets rally, because of some lowering of the Fed Funds target rate or some rollovers of repos every 14 days, it’s not based on a rational perception of reality.