Now THAT’s what I call a rally!
Traders showed their faith in Fed Chair Ben Bernanke, believing that he can stop a stumbling U.S. economy from tripping up
That was all markets needed; Markets were in a deeply oversold condition Monday, hitting 1 week, 1 month and 3 month lows. equities exploded Tuesday and Wednesday, putting together the best two back to back days seen in many years.
The big winners: Equities of all stripes, especially Emerging Markets. The loser: Commodities in general and Crude in particular.
By the numbers: Emerging Markets gained a big 4.7% on the week; European and Global stocks tacked on 3.5 and 3.1% respectively. The Dow (+3.0%), S&P500 (+2.8%) and Nasdaq (+2.5%) were all well into the green. REITs (2.1%) and the Russell2000 (+1.7%) were also positive for the week.
Strength in the dollar pummeled Crude Oil for a 9.6% shellacking. Gold took a 5.2% hit, and commodity futures fell 3.8%.
Barron’s Trader column makes this observation:
"Virtually no Wall Street firm has forecast a recession, preferring to cluster around the popular call for slow, threatened but still-stalwart growth. And the S&P 500 is less than 5.4% from its peak. But with so many eyes on the exit, it’s instructive to know where the fiercest stampedes might occur. Home builders, for instance, have pulled back 70%, exceeding the average 52% peak-to-trough slide around prior recessions. In contrast, hotels, a peer in the consumer-discretionary segment, are just 18% off their recent highs (versus their average 51% declines in recessions). That’s one reason why Merrill economist David Rosenberg says that the builders, along with banks and brokers, have more fully reflected recession risk, while industrials, technology and materials may have more discounting ahead.
Other things to remember: Bull markets hardly end sentiment so negative. Its also worth pointing out that Valuations, while above average, are hardly exorbitant.
Enough Ben Steinery! On with the linkfest:
INVESTING & TRADING
• Fed’s Hints Of a Rate Cut Cheer Markets: The Federal Reserve, faced with mounting signs of a slowing economy, opened the door to an interest-rate cut next month, cheering the nation’s stock market, which staged its biggest two-day rally in five years. The latest signal from the central bank came in remarks by Donald Kohn, its vice chairman, which represented a Fed acknowledgment that the financial-market turmoil that started this summer remains a threat to the economy. (WSJ)
• Simons at Renaissance Cracks Code, Doubling Assets: More than 200 employees, of whom about a third have Ph.D.s, work in East
Setauket. Another 100 are based in Manhattan, San Francisco, London and Milan. "He creates an environment where it’s easy to be creative and works hard to
keep the bullshit level to a minimum,” says former managing director Robert
Frey, who worked at Renaissance from 1992 to 2004. Even without the new commodities fund, Renaissance’s assets have more than
doubled in a year from about $16 billion on Sept. 30, 2006. That growth has
catapulted Renaissance past such titans as Daniel Och’s Och-Ziff Capital
Management Group LLC, Ray Dalio’s Bridgewater Associates Inc. and David Shaw’s
D.E. Shaw & Co. to become the world’s largest hedge fund manager, according
to data compiled by Hedge Fund Research Inc. and Bloomberg. (Bloomberg)
• Bill Gross in Fortune: Beware our Shadow Banking System We have a secret banking system built on derivatives and untouched by regulation…: “What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge-fund managers in mid-August. My Pimco colleague Paul McCulley has labeled it the "shadow banking system" because it has lain hidden for years, untouched by regulation, yet free to magically and mystically create and then package subprime loans into a host of three-letter conduits that only Wall Street wizards could explain… Now, as the subprimes undermine those structures and the confidence in them, it is a stretch of the imagination to suggest that 75 basis points of interest rate cuts by the Fed will bring back the love.
• Bull Market or Just Bull? The real question is whether this is just the market letting out a sigh of relief or a true bottom. So far, it has been a good, or even a great start for the bulls. Despite the excitement, however, the market has not yet made significant technical progress. That is not to say it won’t; but with all the volatility we’ve seen in recent weeks, the first two-day rally of the month must be taken with a jumbo grain of salt. (Barron’s)
• Buy Asia, Sell U.S. Is 2008 Top Trade, Goldman Says: Goldman Sachs Group Inc. said the top trade for 2008 will be
selling the dollar against a basket of currencies from Malaysia, Singapore and
Taiwan as Asian central banks allow faster currency appreciation. Rising inflation pressures and increasing costs to intervene in the markets
will stoke gains in the currencies, said Jens Nordvig, a senior currency
strategist at New York- based Goldman, the world’s most profitable securities
firm. Goldman, in its annual selection of the top 10 trades, also recommended that
investors sell the pound against the yen as U.K. growth slows, pushing the Bank
of England to cut its benchmark interest rate from 5.75 percent. Goldman Chief
Economist Jim O’Neill said yesterday the dollar’s decline has reached a limit. (Bloomberg)
• An Equity Threesome:
–Citadel Throws E*Trade a $2.55 Billion Lifeline
–Sears Profit Plunges; Cost Cuts Get Blame
• Private Window on the Red Hot Art Market: Collectively, the November sales held by Christie’s, Sotheby’s and Phillips de Pury in New York over a single week pulled in nearly $950 million. But even before the crowds dispersed, Fitzpatrick was talking with disappointed bidders about alternative acquisitions. "To understand just how healthy the art market really is, you have to get a sense of what is happening in that private market, because that is where the lion’s share of the transactions are taking place," he says. (Barron’s)
• 1000% hedge fund wins subprime bet: Now THATS some impressive ROI! (FT)
• Tyler Cowen is a Weak Dollar Apologist: The Dollar Is Falling, and That’s Good News (NYT)
• Robert Rubin on the job he never wanted
The Wall of worry continues to build:
• Bernanke Points the Way to Lower Rates: BEN BERNANKE LET IT BE KNOWN he’s aware of the worsening credit crunch, which makes it reasonable to expect that he and his merry band of monetary-policy honchos will do something about on Dec. 11. But in a speech Thursday evening, Fed Chairman Bernanke explicitly took note of the deterioration in financial conditions since the Federal Open Market Committee’s last meeting that ended on Oct. 31. Then, the policy-setting panel voted to lower its target for the federal funds rate 25 basis points (one-quarter percentage point), but declared the risks of inflation and economic weakness were balanced. (Barron’s)
• GDP=4.9% (also, I have a bridge for sale in Brooklyn)
• U.S. Economy: Growth Is Faltering After 4.9% Surge: The U.S. economy is faltering after a third-quarter expansion as new-home prices dropped the most since 1970 and jobless claims rose to a nine-month high.The figures are consistent with a report from the Federal Reserve yesterday that showed a slowing expansion. Traders are certain the central bank will reduce interest rates again next month, which would mark the deepest cut in borrowing costs since 2001. (Bloomberg)
• Black Friday’s Upside Surprise
• Consumer spending, incomes up a weak 0.2% in October
• Wall Street Failed in CDO `Lottery,’ SEC’s Sirri Say: Securities firms and banks sold "too
many lottery tickets” tied to U.S. mortgages and failed to look
closely enough at their growing risks, the head of the Securities
and Exchange Commission’s market regulation division said today. Financial companies had "a significant risk management
failure” on so-called super senior classes of collateralized debt
obligations made up of asset-backed bonds, Erik R. Sirri said at a
conference in New York, according to the text of his remarks
published on the agency’s Web site. (Bloomberg)
• THE TREASURY’S MISSING MINUTES MYSTERY (NYPost)
• Case-Shiller Home Price Index Posts Record Annual Decline
• U.S. Mortgage Crisis Slams Property Values, Revenue: The worst U.S. housing recession in 16 years will drive down property values by $1.2 trillion
next year and slash tax revenue by more than $6.6 billion,
according to a report by the U.S. Conference of Mayors. California, the hardest-hit state, will suffer a $630.6
billion decrease in property values that will cut property tax
revenue to local governments by almost $3 billion, the study
estimated. The New York City region will see the greatest
slowdown in economic output because of the mortgage crisis,
according to the report. The U.S. residential real estate market is faltering as
rising foreclosures among subprime borrowers have pushed down
prices and led to a record supply of unsold homes. Foreclosures
among homeowners with subprime adjustable-rate mortgages have
reached a five-year high. (Bloomberg)
• New Home Sales Rebound! Sales drop 23.5%; Prices fell 13%! (I don’t think that word means what you think it does)
• Fed, Treasury, FDIC Stymied By Lack of Data on Subprime Loans
Federal regulators, who met with bankers today at the Treasury Department in Washington, still lack reliable estimates on the extent of the subprime mortgage crisis. Three months after they asked banks to modify loans for borrowers at risk of default, agencies have little data on what lenders and loan servicers have done, officials say. (Bloomberg)
• 14,196 Homes Offered For Sale on Countrywide Financial’s Website = Total REO Asking Price: $2,969,067,322
• Home prices: Worst drop since ’70 The biggest plunge in new home prices in 37 years was not enough to revive October sales, according to the government’s latest reading on the battered housing and home building markets. The report showed that the median price of a new home sold in October
plunged 13 percent from year-earlier levels to $217,800. It was the
most severe year-over-year drop since September 1970, when the median
price was only $22,600, or less than the cost of a typical new car
purchase today. (CNNMoney.com)
• In Counterinsurgency Class, Soldiers Think Like Taliban: Capt. Helmer, a West Point graduate from Mantua, N.J., originally deployed to Afghanistan as a mentor for the Afghan National Police. At Oxford, he was author of a study on Israel’s fight against Hezbollah guerrillas in Lebanon, where an army with overwhelming conventional superiority found itself mired against insurgents who had the vital support of the locals. Fast-talking, with deep-set eyes, a sunburned neck and a moustache that he grew out of respect for Afghanistan’s hairiness-is-next-to-manliness culture, he says he thought from the start that Army training didn’t prepare troops well for the intricacies of fighting the Afghan insurgency. (Wall Street Journal)
• Talkin’ World War III: Could we have a little talk about World War III? It’s back again, that phrase, and it doesn’t look like it’s going to go away soon.This past month may be remembered as the one when World War III broke out. Not the thing itself, obviously, but the concept, the memory, the nightmare, which had been buried in the basement of our cultural consciousness since the end of the Cold War. The beast suddenly broke out of the basement and it’s in our face again. The return of the repressed. (Slate)
• Headline of the week: Establishment meets counter-culture as ‘Deadhead’ Alex Allan is made chief of intelligence: One of the country’s most dedicated “Deadheads” – as fans of the rock band
the Grateful Dead are known – is to become the Government’s top intelligence
adviser. Alex Allan, who is Permanent Secretary at the Ministry of Justice, is such an
enthusiast for the Grateful Dead, who were a leading American “underground” band
during the hippy era, that he places their music at the top of his list of
interests, above sailing, cycling, computers and bridge. (Times online)
TECHNOLOGY & SCIENCE
• Apple to Unveil Faster iPhone, AT&T’s Stephenson Says: Apple Inc. will introduce a version of the iPhone next year that can download from the Internet at a faster rate, AT&T Inc. Chief Executive Officer Randall Stephenson said. (Bloomberg) — see also Dell Says His Retail Strategy Is Reviving Sales
• Yahoo, AOL May Abandon Web Radio After Increase in Royalties
• Why Autumn Colors Are So Late: A gray, grim landscape used to greet residents of the Northeastern United States each November, but autumn’s riot of red, orange and yellow came late this year. Delayed fall foliage also occurred in Chicago and parts of Europe.Some say droughts and a warm summer played a role, while others wonder more broadly about global warming. In fact, it’s rising levels of carbon dioxide, not the warmer temperatures fueled by the greenhouse gas, that have been delaying the transformation of green leaves, at least in Europe for a few decades, a new study suggests.In the past 30 years, leaf color change across Europe has gradually occurred later and later, with a delay of about 1.3 to 1.8 days per decade. Like the early onset of spring blooms, this phenomenon has been explained as a result of Earth’s rising temperatures.
• Amazon’s Secret Price Guarantee
MUSIC BOOKS MOVIES TV FUN!
• I was aghast to see Dilbert’s Scott Adams had stopped blogging; this led to 7 Suggestions for Scott Adams
• In case you missed it: The Updated version of our Favorite Holiday CDs
• terrific Michael Lewis article: The Kick Is Up and It’s … A Career Killer "There is still some faint resistance to the notion that a kicker could
ever really do anything great. Brett Favre can throw 10 more
game-ending interceptions and fans will still cherish his moments of
glory. Reggie Bush may fumble away a championship and still end up
being known for the best things he ever does. Even offensive linemen
whose names no one remembers are permitted to end their days basking in
the reflected glory of having been on the field. Kickers alone are
required to make their own cases."
• Hollywood Studio Exec Explains The Writers’ Strike (very funny!)
That’s all from what the NorthEast, where winter has finally arrived — but many of the tress still have leaves on them — thats just plain strange.
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, send email to thebigpicture [AT] optonline [DOT] net.
An unusual lack of driving, windy rainstorms is probably the culprit for our late falling leaves this year. Very much like a number of fall seasons anyone from the Northeast can remember over tha last 40 years or so. So please, get Al Gore to his nice comfy rubber room and leave us alone, OK?
barry without going into details the weather/seasons have been getting curiouser and curiouser here in oz for 10 years raising awareness (climate change is not new for an earth zillions of years old)its the awareness and the tools available that should be the real driver
only comment on
“Bull markets hardly end sentiment so negative. Its also worth pointing out that Valuations, while above average, are hardly exorbitant.”
if studies show bear markets don’t bottom until there is a significant stream of good news surely the corollary is that interim bull markets don’t break sharply until there is an overwhelming stream of bad news (and there’s more to come!)
also “valuations” dependent on “E” depend on how much faith you’ve got in the “E”
Awfully bearish sentiment out there. Near term, equity markets move higer. Quite a bit higher.
I agree in the near term Tom
New York Times December 1, 2007
“The new report concluded that personal income from wages and salaries grew at an annual rate of 1.6 percent in the second quarter, far below the 4.5 percent that had previously been estimated.”
“…he expected the government would revise its estimate of the number of jobs created in the quarter, to as little as 50,000 a month from 126,000 a month. That would indicate that the economy was much weaker than had been thought.”
We need a need a new Fed Chairman, Ben Bernanke is old school. We need new school Dean Lewis (Lewis Black) who would do a better job. I think he would tell Ben, “Why don’t you take your PhD and stick it up your A-S-S!
“When words are scarce they are seldom spent in vain”
I’ve been bearish for over a year…I’ve also been reading your blog for over a year. I wonder if there is a connection there?…not really, bears find each other.
The hype and subsequent horror of the realestate market hasn’t really visited Tallahassee as it has the rest of the country, but, back in 05 I did notice that average home values were exceeding the affordability of average personal incomes as reported by the census. This caused me to worry quite a bit about the endgame of this bubble.
What I don’t quite understand, and I hope someone here will inform me on, is, if CDSs are a multi-trillion dollar business, and the magic of CDSs transform subprime-mixed MBS’s into AAA bonds, then why are subprime defaults having any effect on the holders of these bonds? Shouldn’t CDS’s defray the risk of default to a point that the return of the bonds remains constant? Is the real problem here the default of CDS sellers and not the subprime defaults alone?
Please proved links to in-depth articles if possible.
Sorry, I should not have ‘quoted that quote’!
I don’t mean disrespect about Ben!
“Render therefore to Caesar the things that are Caesar’s.”!
We need to close are eyes and hope for the best, God help us savers.
If once you forfeit the confidence of your fellow-citizens, you can never regain their respect and esteem.”
Wisely, and slow. They stumble that run fast.”
First snow in metro new york this morning. right on schedule.
[Thoughts from the Frontline Weekly Newsletter, ‘The Financial Fire Trucks Are Gathering’ by John Mauldin -November 30, 2007]
Thank you Mr. Maudin. No better parable could ever have been written in scriptures.
“Financial analysts on Friday said E*Trade got anywhere from 11 cents to 27 cents on the dollar for its $3.1 billion portfolio of asset-backed securities.
Goldman Sachs analysts said they were surprised by the size of the discount on the E*Trade portfolio because 73 percent of the assets were backed by prime mortgages, or loans to people with solid credit.”
GS should understand by now that a high FICO score does not assure solid credit, while unaffordability is unaffordability no matter what.
And Citi still has $66B in off-balance sheet SIVs?
margin calls can be brutal
Nice post. The only thing Mr. Maudin forgot to mention was that one-trillion gallon storage tank of derivative diesel fuel in the basement.
December Linkfest: Week in Preview
Yesterday, we looked at the week that was. Today, we preview the week that will be. We have a light week queued up, punctuated by several important events. Monday brings ISM Mfg Index, and on Tuesday, its Weekly Retail Store Sales. Wednesday is Factory…
FASB 157 + E-Trade loan portfolio exit price =
EXTREMELY ugly Q4 results for ANY holders or backers (implicit or otherwise) of derivatives and loan portfolios.
Because this wasn’t a subprime portfolio (breakdown @ calculated risk), everything might get punished.
I wonder how many money funds will have to liquidate as a consequence?
In my last post I mistakenly wrote Mr. Maudin instead of Mauldin.
There will be “L” to pay for that gaffe.
Don’t put the L back out of order or you’ll make him cry.
Yes, but from the tone of his letter the correct placement may wel(L) be incorrect.
What no (not so) subtle digs at Bush this week? He must have had a good week with the Middle East peace conference and the market recovery. First “bye” week that I can remember. Why don’t u just admit you are a flaming pinko liberal?
>> What no (not so) subtle digs at Bush
>> this week? He must have had a good week
>> with the Middle East peace conference and
>> the market recovery. First “bye” week
>> that I can remember.
>> Why don’t u just admit you are a flaming
>> pinko liberal?
Many Republicans and all libertarians are disgusted with this administration. Some of Bush’s former staff have written scathing books. Did you miss this (ignorance) or did you read it and disagree with it?
Why don’t you admit you wear your ass as a hat, like the rest of the your Bolton-Cheney-Libby-Bush-Rove bunker buddies?
Great Post!, I enjoy reading it.