Words from the wise for the week that was (Oct 8 to 14, 2007)
It is with a sense of anxiety that I am compiling this article as our national rugby squad is contesting the World Cup semi-final against the Argentinean Pumas this evening. South Africa has now moved to odds-on (5:6) favorite subsequent to yesterday’s shock defeat of France by England in the other semi. But no need to worry about which team will take the crown home if you view the video clip I posted a few days ago!
Back to business. Before highlighting some thought-provoking quotes from market commentators during the past week, let’s briefly review the markets’ action on the basis of economic statistics and a few performance charts.
WEEK’S ECONOMIC REPORTS
This week’s economic highlights include the NY Empire State Index on Monday, Net Foreign Purchases, Industrial Production, and Capacity Utilization on Tuesday, CPI, Housing Starts, Building Permits, and the Fed’s Beige Book on Wednesday, and Initial Jobless Claims, Leading Economic Indicators, and the Philadelphia Fed survey on Thursday.
Global stock markets
Global fixed-interest and currency markets
The decline of the US dollar decelerated on the back of the prospect of interest rates remaining at current levels for longer. However, the US Dollar Index remained close to its all-time low of 77.657 achieved on Monday, resulting in talk about multilateral currency intervention rearing its head. The British pound came under further pressure as the UK economic outlook deteriorated.
The precious metals complex prolonged its rally, with especially platinum and silver performing strongly. Copper, however, ended the week down by almost 2% as profit-taking set in and concerns about China raising interest rates again also played a role.
Now for some words (and pictures) from the investment wise to navigate through the markets’ cross-currents:
Jim Sinclair (MineSet): What makes you think the forces that got us here can extricate the economy from a selective recession?
Source: Jim Sinclair, Jim Sinclair’s MineSet, October 12, 2007.
John Mauldin: The slow motion recession
Source: John Mauldin: Thoughts from the Frontline, October 12, 2007.
Economy.com: Survey of business confidence for world
Source: Moody’s Economy.com, October 8, 2007.
Asha Bangalore (Northern Trust): Fed most likely on hold at October 30-31 FOMC Meeting
“The FOMC has changed its view about inflation since the August meeting. It now sees the “inflation situation to have improved slightly and judged that it was no longer appropriate to indicate that a sustained moderation in inflation pressures has yet to be shown.
“The minutes excluded any type of explicit guidance about the timing of the next federal funds rate cut. Future actions would depend on how economic prospects were affected by evolving market developments and by other factors.”
Source: Asha Bangalore, Northern Trust’s Daily Global Commentary, October 9, 2007.
Richard Russell (Dow Theory Letters): Bull market remains incomplete
“I don’t think we’ve seen that kind of action or that kind of wildly bullish sentiment. I think we will see it in the months ahead. I don’t know whether we’ll see it next month or in the first quarter of 2008 or maybe we’ll even have to wait until late-2008 or early-2009.
“As I see it, this bull market remains incomplete, unfinished. I’m looking ahead to the completion, the true finish. That lies somewhere ’out there’. How we get there may be deceptive, it may be difficult, but we’ll get there. I repeat, we will get there!”
Source: Richard Russell, Dow Theory Letters, October 9, 2007.
Richard Russell (Dow Theory Letters): Sovereign wealth funds
“We know that there is massive growth in the sovereign wealth funds, the total of which is heading towards the staggering sum of $17 trillion (that’s seventeen trillion dollars!). The major object of these funds will be to diversify out of fiat paper into items of tangible value. Is a large, well-situated corporation an item of tangible value? We … agreed that it is.
“We therefore believe that a major goal of the sovereign wealth funds will be to buy into and ultimately even take over many of the world’s leading corporations. This whole area is one that has received surprisingly little attention. Yet, it’s significance is truly momentous. It all has to do with the fragility of the whole system of fiat currencies. And the recognition that inflation or even hyper-inflation may be the wave of the future.”
Source: Richard Russell, Dow Theory Letters, October 12, 2007.
MarketWatch: S&P 500 earnings likely to turn negative
Source: Nick Godt, MarketWatch, October 10, 2007.
The Week (Wachovia Securities): Crowd sentiment suggests stock gains may slow
Source: Rod Smyth, The Week, Wachovia Securities, October 8, 2007.
Marc Faber: Bubble markets will tumble
“Emerging stock markets have fully recovered from their July/August declines and several markets are making new highs. However, market breadth has deteriorated and declining volumes are arguing for some caution. There is no doubt that we are dealing with bubbles in China and in India. Can these bubbles be inflated by another 100%? Possibly, if Taiwan and Japan in the 1980s serve as a model! However, risks are high (as they are for the Nasdaq 100) and once these markets tumble (and they will) the shaky global financial system will be tested one more time.”
Source: Marc Faber, AME Info, October 9, 2007.
Doug Casey: Central bank gold agreement
Source: Doug Casey, Casey’s Daily Resource Plus, October 11, 2007.
Jim Sinclair (MineSet): $1 000 gold on the horizon
“Gold is fighting the $751 to $761 area of supply, but will overcome this area and move above $1 000. All of what you are seeing now is funds powered by black boxes running amuck hither and yon with no significance at all. The time for zig-zag is over just as it was in the middle of 1979. You may sell as a trading fiend, but one day soon gold will take off like a rocket to breach $1 000, most likely without you. This is the real thing. Sell only if you have a defined need for the cash. Otherwise stand pat and ignore the daily madness.”
Source: Jim Sinclair, Jim Sinclair’s MineSet, October 10, 2007.
BCA Research: Commodities – “just right”
Source: Daily Insights, BCA Research, October 9, 2007.
David Fuller (Fullermoney): Multilateral currency intervention
“Multilateral intervention would only occur if the US dollar was accelerating lower, creating a crisis atmosphere. Central banks would use this opportunity to engineer a high-profile bear squeeze. If / when this occurs, forex traders will claim that it won’t work, because they are on the other side of the trade. Previously, they have backed off temporarily and then taken on the central banks once again, at considerable risk.
“The central banks may lose a battle or two, but never the war. They are the occasional, big, rough and tough players in the currency markets. After all, they can run unlimited losses, print more money if necessary, and are only answerable to themselves and there respective governments, which will have sanctioned the intervention. The central banks can also change the ‘rules’, by altering interest rates, if necessary, changing margin requirements or even releasing statistics to unsettle speculators (these stats can always be revised later). If you regard currency markets as a casino, then central banks are analogous to the House.”
Source: David Fuller, Fullermoney, October 8, 2007.
GaveKal: Asian countries changing exchange rate policies
“Asian countries that are serious about fighting the specter of rising inflation and rampant speculation on asset markets now have little choice but to slowly abandon their prior exchange rate policies. … one by one, countries seem to be adopting the belief that a stronger currency need not decimate their economies. In that regard, the example of India is particularly interesting: After letting the Rupee appreciate six months ago, the economy is booming, and the stock market keeps on making all-time highs. Better yet, the inflation rate has been falling in recent months (despite higher food and energy prices), which provides room for the authorities to start cutting rates. Undeniably, India is now in the midst of a tremendous triple merit scenario (higher currency, lower interest rates, booming asset prices) and we see no reason why the rest of Asia should not join this party.”
Source: Checking the Boxes, GaveKal Research, October 12, 2007.
GaveKal: Disappointment from Euroland
“First and foremost, interest rates have now doubled since the end of 2005. Worse yet, real yields are now above nominal GDP growth. … contrary to popular belief, EMU exports are sensitive to exchange rates. Aside from weakening exports, Europe’s service industries are also starting to slow. In fact, Euroland services grew at the slowest pace in two years in September … Germany’s services sector is also looking particularly weak.
“All in all, we think the European economy is set to disappoint in the coming months, and we remain underweight.”
Source: Checking the Boxes, GaveKal Research, October 9, 2007.
Eoin Treacy (Fullermoney): Indian stock market – the dancing elephant
“The country’s demographics, a large educated workforce, coupled with a regulatory environment which continues to open up sets the stage for impressive GDP growth. However when this is coupled with massive projected infrastructure investment and an appreciating currency we have a recipe for impressive investment flows into the country. We are witnessing some of the result of this right now and the speed with which the benchmark Sensex has appreciated has taken everyone by surprise. This is not the time for opening new long positions but it is a time for watching the next reaction which will provide the next good buying opportunity.”
Source: Eoin Treacy, Fullermoney, October 12, 2007.
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