That was a helluva week, if I may say so myself — only the Nasdaq managed to close in the green. The rest of the major indices succumbed to $96 Oil, and a recognition that the Fed is done for the foreseeable future.
By the numbers, all of the dollar denominated commodities rocketed in response the the Fed’s largesse:As the greenback feel nearly 1%, Crude Oil gained 4.4%, Gold was up 2.7%, and Commodity Futures tacked on 2.0%. All manner of bonds made marginal gains.
European stocks lost a percent, the Dow slipped a point and a half, while the SPX dropped 1.7%. The big losers wee the Russell2000, which shed 2.9%; REITs got shellacked again, sliding 4.2%. For the past 52 weeks, REITS are now down 1.4%.
Barron’s Trader column quoted William Priest, chief executive of Epoch Investment Partners:
"We’re in the third or fourth inning in terms of financial-sector problems," he says. While modest earnings growth could drive stocks up 6% to 8% over the next 12 months or so, Priest sees "potholes all over the place," including the worsening credit and housing markets. Late Friday reports of an emergency Citi board meeting this weekend, and pressure on American International Group (AIG) to boost shareholder value only added to investors’ concerns.
Where to begin this week? The Fed? Yields?
The VIX? No matter — we got it all
INVESTING & TRADING
• Fed Cuts, Signals Markets Don’t Look for Another: Federal Reserve officials did what financial markets demanded by cutting their target for the overnight lending rate by a quarter-percentage point, to 4.5 percent.The demand was in the form of a near unanimous expectation that such a cut would be forthcoming, with the prospect of a severe adverse market reaction if it wasn’t. (Bloomberg)
• Market Pros remain Bullish: ON WALL STREET, THE SUMMERTIME BLUES have given way to the fall blahs. The housing market is crumbling, the credit market is stumbling, and stocks are tumbling from the highs they reached last month.Given this worrisome backdrop, it’s no surprise America’s money managers remain cautious about the investment outlook for the months ahead. Just 47%, or fewer than half of the professional investors who responded to our latest Big Money poll, say they are bullish or very bullish about the prospects for stocks through the middle of 2008, a reading nearly identical to last spring’s level of bullish sentiment, but well below the 64% of managers who were bullish a year ago. Indeed, 55% of our respondents think the market is fairly valued at current levels, while another 22% consider stocks overvalued. (Barron’s)
• Financials Are Eating Dust of Tech: With two months left in 2007, the winners and losers
on Wall Street are shaping up. Technology stocks have taken the lead
down the stretch. At the back of the pack: financials. Why are tech stocks outpacing financials? In a word: earnings. Technology stocks have been shooting higher amid strong earnings growth
— and expectations are that their earnings will keep rising. The
third-quarter earnings-growth rate for tech stocks in the Standard
& Poor’s 500-stock index is estimated at 15%, based on results
already reported and projections, according to Thomson Financial. That
would be the strongest gain by any sector. (Wall Street Journal)
• The Week That Shook the Financial Sector: FOR INVESTORS IN FINANCIAL STOCKS, last week was one to forget. Too bad the throbbing pain in their wallets wouldn’t let them clear it from their memories. The week started badly with the ouster of Stanley O’Neal, the CEO on whose watch Merrill Lynch stumbled into an $8 billion write-off. It worsened as the financial sector led stocks down in a brutal post-Halloween pummeling that particularly punished companies like Washington Mutual, Ambac Financial Group and MBIA. And it didn’t end well, amid persistent suspicion that more bad news is lurking. (Barron’s) if no Barron’s sub, go here.
• Bill Gross on the credit crunch at Citi: Shadow Dancing: Citigroup’s Chuck Prince was a dancer. Not by profession mind you, or even as an amateur Foxtrotter with the Stars on ABC. Prince danced with subprime mortgages and the financial conduits that contained them. “As long as the music is playing,” he foreswore in early July, “you’ve got to get up and dance. We’re still dancing.” Prince’s observation may not top that of Irving Fisher in 1929 who proclaimed a permanently higher plateau for the stock market, but it will suffice for a generation of modern day investors and their iconic leaders who should have known when to exit the floor. He – they – dance no more with their subprime partners. Still, someone had to be the last to know that the music was over and to be caught when Jim Morrison’s proverbial lights were dimming, if not flickering out. And to be fair, there were millions of dancing investors still on that floor when the unraveling of Bear Stearns’ hedge funds gave the party its first hint that this was going to be the last dance. (PIMCO)
• The new math of oil: We’re hard-wired to tremble when oil prices
rocket, and the past few weeks have looked like another example of why.
Whenever stocks fell sharply, as they did several times, traders blamed
the fast-rising price of oil. But that chain of logic is
misleading. The bigger picture shows that the relation between oil and
the economy is changing, and we’ll have to rewire our brains to
understand what’s happening. Watching oil prices rise and fall is no
longer enough; the key now is understanding why they’re moving. (Fortune)
• A Hulbert Bond two fer:
–Bond market’s faith restored?: How will long-term interest rates react if the Fed cuts short-term rates, as the market is now almost universally expecting? To some, answering this question will seem obvious: Don’t all interest rates – both short and long-term move up and down more or less in tandem? Well, not exactly . . . (MarketWatch)
–Long-term inflation? Bond market sees Fed’s rate-cut as inflationary: The bond market’s immediate reaction to the Fed decision, when long-term rates rose, is the one to which we should pay attention when assessing what it thinks the rate cut means. That would mean that the bond market is saying that lower short-term rates will have long-term inflationary consequences. (MarketWatch)
The Wall of worry continues to build:
• Inflation — Lessons From History: Inflation expectations are currently very low, but history teaches us caution. Investors believe the benign low-environment will prevail for many years to come, as evidenced by survey-based and market-based inflation expectations. We have scrutinized 187 years of consumer price data for the US, the UK and Germany and drawn three conclusions . . . (Morgan Stanley)
• By now, you know that the Non Farm Payroll was +166k; but do you know how this data set has been put together, and how this cycleit differs from prior recoveries: Delving Deeply Into the Data of NFP Day.
• The return of price controls: Price controls haven’t been completely vanquished. Rather, they’ve lain
dormant, waiting to be revived by the strong odor of inflation. Several
years of synchronous global growth, powered by surging economies in
Asia and dissolute monetary and fiscal policies (thanks, Messrs.
Greenspan and Bush) are combining to push prices higher. The United
States has dealt with the rise of inflation in a typically American
way—by spinning it out of existence. If you ignore food and
energy—i.e., the things that have been rising for several years and
that have a tendency to filter into other prices—and instead focus on
the core rate, the conventional wisdom goes, inflation is utterly under control. (Slate)
• Prisoners of Debt: A fresh start with bankruptcy? Big lenders keep squeezing money out of consumers whose debts were canceled by the courts (Business Week)
• Now we know Argentina is in trouble: Fernández, to copy US inflation data methods Cristina Fernández, Argentine president-elect, has vowed to restore credibility in the country’s official inflation figures by copying US data-gathering methods, in an attempt to calm fears about government manipulation of statistics. (FT)
• What will World War IV cost? First, let’s clear the air: Someone please tell the White House we’re already fighting World War III. Yes, they’re great at picking buzzwords, but the truth is our global "war on terror" has engaged (or enraged) every nation on the planet. And according to the latest Congressional Budget Office estimates it’s costing America a whopping $2.4 trillion. That’s $8,000 for each of us. So what’ll the coming WWIV add? And how will it impact your retirement? Scary huh! (MarketWatch)
• A Washington official dares to tell the truth: Washington is bankrupting future generations. The longer we wait to
address the $9 trillion national debt and ongoing annual budget
deficits, the more taxes our children and grandchildren will have to
pay, says David M. Walker, comptroller general of the United States,
head of the General Accountability Office and just about the only
public official in Washington these days telling the truth about the
country’s fiscal situation. We’re basically taxing future generations
without representation (because they can’t vote or haven’t been born),
which he says is immoral. (Baltimore Sun)
• War Plans: United States and Iran: A possible U.S. attack against Iran has been a hot topic in the news for many months now. In some quarters it has become an article of faith that the Bush administration intends to order such an attack before it leaves office. It remains a mystery whether the administration plans an actual attack or whether it is using the threat of attack to try to intimidate Iran — and thus shape its behavior in Iraq and elsewhere. Unraveling the mystery lies, at least in part, in examining what a U.S. attack would look like, given U.S. goals and resources, as well as in considering the potential Iranian response. Before turning to intentions, it is important to discuss the desired outcomes and capabilities. Unfortunately, those discussions have taken a backseat to speculations about the sheer probability of war. (Stratfor)
TECHNOLOGY & SCIENCE
• The Next Microsoft: Google is learning too well from the master: This week I want to point out where Google is screwing up, why, and what they should do about it. My first point is small but significant. If you are a resident of the U.S. you may have used a service called free411.com or 1-800free411. It is a simple service that looks up directory listings for free, saving callers fees of a dollar or more per inquiry. You can look up listings online, but most people call the toll-free number. Where free411 makes its money is by forcing users to listen to an ad before they get the number they are looking for. The service is incredibly successful averaging more than 25 million calls per month. (Cringely)
• The Undiscovered Planet Microbial science illuminates a world of astounding diversity.
• After smart weapons, smart soldiers: Irregular warfare may keep Western armies busy for decades. They will
have to adapt if they are to overcome the odds that history suggests
they are up against. (The Economist)
• Big Picture Reader Survey: More than 2000 readers participated in this financial blog survey; the results were rather intriguing . . .
MUSIC BOOKS MOVIES TV FUN!
• Holiday Book Shopping all these articles about Wal-Mart Stores cut prices on 15,000 items for the holidays has me thinking about getting an early jump on Christmas shopping. I’ve only just begun thinking about some gifts, when I came across these few books that look intriguing;
• Big Head Todd is giving away their new CD for free, in exchange for an email address.
• Jerry Seinfeld’s response when Larry King asks if the show Seinfeld was canceled (Can someone get a resume in here?)
That’s all from here — remember, that Daylight saving time ends Sunday, so no matter what your alarm clock says, you just gained an hour of sleep Monday morning . . .
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