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:
• 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)
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)
• 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)
• 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)
• 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)
• 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
• 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.
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.
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