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 By Prieur du Plessis, on January 30th, 2010 posted in: Business, Economy, Finance, Guest Bloggers, International real estate, Investment, Markets, Money, South Africa, Travel  2 people had their say - chime in!
An old stock market saw tells us if the month of January is higher, there is a good chance the year will end higher, i.e. the so-called “January Barometer”. On the other hand, with the exception of 2009, every down-January since 1950 has been followed by a new or continuing bear market or a flat year. “As January goes, so goes the year,” said Jeffrey Hirsch (Stock Trader’s Almanac). The result for January is in, and it is not a good one: The Dow Jones Industrial Index closed 3.5% down on the month and the S&P 500 Index 3.7% lower. Also, according to Hirsch, the “December Low Indicator” says that should the Dow Jones Industrial Index close below its December low anytime during the first quarter, it is frequently an excellent warning sign. The key number to watch was the low of 10,286 (December Although this is not particularly scientific research, it is clear we are not seeing a good start to 2010 and should at least be mindful of these indicators. Considering the short-term technical picture of the Nasdaq Composite Index, Adam Hewison (INO.com) provides a short analysis showing a rather negative downside break. Click here to access the presentation. (He also recently analyzed the Dow Jones Industrial Index and the S&P 500 Index. Click here and here.) More on this topic (What's this?) Hiring Surges in Pimps, Prostitutes and Drug Dealers (Wealth Daily, 2/4/12) Dogs Of The Dow For 2012 (Disciplined Approach to Investing, 1/1/12) Ratio Analysis: $DAX/European Financial Index Going Parabolic? (Money Morning, 1/24/12)  By Prieur du Plessis, on November 5th, 2009 posted in: Business, Economy, Guest Bloggers Leave your comment
This post is a guest contribution by Asha Bangalore* of The Northern Trust Company. The FOMC policy statement following the meeting of November 3-4 retains roughly the stance that was conveyed in the September policy statement. In the November 4 policy statement, the Fed also left unchanged the much quoted phrase – “warrant exceptionally low levels of the federal funds rate for an extended period.” Essentially, the Fed is no rush to change its monetary policy stance. The financial media appears to have reacted prematurely after the 3.5% increase in third quarter real GDP. The effective federal funds rate continues to trade below the upper limit of the target federal funds rate (see chart 1).
The modifications of today’s policy statement are consistent with the nature of incoming economic reports and financial market conditions. The outlook for inflation was not modified. The reduction in the quantity of agency bonds the Fed plans to purchase (to $175 billion from $200 billion) is due to a limited availability of these bonds. This is the Bernanke Fed and we are in extraordinary times; it is not the Greenspan Fed in 2004. Irrespective of these major differences, the timeline of the change in Fed policy following the 2001 recession is instructive. The Fed reduced the federal funds rate to 1.00% on June 25, 2003. The Fed started the easing process on January 3, 2001 from a federal funds rate of 6.50%. The tightening phase of monetary policy commenced on June 30, 2004. Between the FOMC meetings of June 2003 and June 2004, the unemployment rate had declined from a cycle high of 6.3% in May 2003 to 5.6% in May 2004 (see chart 2).
Non-farm payrolls had posted several months of meaningful gains (see chart 3) and the year-to-year change in hourly earnings was showing an accelerating trend (see chart 4). Real GDP had risen for several quarters (chart 5). Chart 2-5 illustrate that the situation today is vastly different to expect a change in the Fed’s posture in the near term despite the enormous easing put in place and the recent bullish economic reports.
With regard to the Fed preparing markets for the change in Fed policy, the following excerpts from the policy statements of 2004 prior to June indicate that the Fed provided an explicit warning about the impending change in monetary policy only one meeting prior to raising the federal funds rate in June 2004. From policy statement of January 28, 2004 “The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation. With inflation quite low and resource use slack, the Committee believes that it can be patient in removing its policy accommodation.” From policy statement of March 16, 2004: From policy statement of May 4, 2004 Source: Northern Trust – Daily Global Commentary, November 4, 2008. * Asha Bangalore is vice president and economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago. More on this topic (What's this?) Another Bernanke Market Rally (Money Morning, 1/26/12) Ron Paul's Gold (Wealth Daily, 1/10/12) The Good, the Bad and the Ugly: Income Strategies for 2012 (Wall Street Daily, 1/23/12) By Prieur du Plessis, on July 18th, 2009 posted in: Business, Economy, Guest Bloggers Leave your comment
This post is a guest contribution by Dr Jay Bryson* of Wells Fargo Securities, Economics Group. Recently released data showed that the year-over-year growth rate of Chinese real GDP rose from 6.1 percent in the first quarter of this year to 7.9 percent in the second quarter (Figure 1). Monthly data certainly suggested that economic growth in China was picking up steam in the second quarter, so the confirmation that overall GDP accelerated in the recently completed quarter was a pleasant, albeit not totally unexpected, outturn. Why is the Chinese economy accelerating again? A breakdown of real GDP into its underlying demand components is not available, but monthly data offer some clues. First, foreign trade is starting to stabilize. The swoon in exports in the second half of 2008 and early this year exerted a powerful drag on the Chinese economy. Now that foreign trade is starting to stabilize, Chinese real GDP growth is returning to its underlying “run rate.” In addition, growth rates of retail spending and investment spending have also strengthened over the past few months. So why are Chinese consumers and Chinese businesses opening up their wallets with newfound vigor? The Chinese government responded very quickly and aggressively to the global financial crisis last year, and the recent acceleration in domestic spending reflects, at least in part, the effects of policy stimulus. The government implemented some modest tax cuts late last year, which may help to explain the acceleration in consumer spending, and its sizable infrastructure spending program is helping to boost investment spending.
Monetary policy was also eased via a number of channels. Not only did the central bank cut its benchmark lending rate by more than 200 bps between September and December but, more importantly, the government rescinded lending restrictions that were put in place in early 2008 when inflation was seen as Public Enemy #1. Indeed, the government has been actively encouraging banks to lend, and its efforts appear to be paying off. As shown in Figure 2, loan growth has simply exploded over the past few months. The current rate of lending growth exceeds the super-charged rates that were registered earlier this decade when the government was attempting to stimulate the economy at that time. Should we be worried about the strong rate of lending growth in China at present? In its zeal to jumpstart the economy, is the Chinese government sowing the seeds of yet another bubble that will have disastrous consequences for not only China but for the entire global economy? Click here for the full article. Source: Wells Fargo Securities, Economics Group, July 16, 2009. * Jay Bryson is the Global Economist at Wells Fargo Securities. He joined Wachovia (now a Wells Fargo company) in 1998 to provide analysis on financial markets and macroeconomic developments in foreign economies. Before joining Wachovia, Dr. Bryson was an economist in the Division of International Finance at the Federal Reserve Board in Washington, D.C. From 1989 to 1992, he was an assistant professor of economics at the University of Alabama. He received his B.A. and Ph.D. degrees in economics from the University of North Carolina at Chapel Hill. More on this topic (What's this?) Scary: Why China is Buying Gold Like Mad (Learn Mining News, 1/30/12) China’s Factories Improve (Wall Street Daily, 2/1/12) Chinese Record Gold Rush (Wealth Daily, 1/30/12) By Prieur du Plessis, on January 14th, 2008 posted in: Bonds, Business, Commodities, Currencies, Dollar, Economy, Finance, Gold, Investment, Markets, Money, Stocks, Wall Street Leave your comment
The past week witnessed mounting uncertainty as investors digested news regarding the ongoing credit market problems and deepening gloom about the global economy. In the words of Richard Russell, author of the 50-year old Dow Theory Letters: “If you’re standing on the railroad track and the train is bearing down on you at 90 miles per hour, don’t stand there trying to decide whether the oncoming train is the ‘Midnight Special’ or the ‘Wabash Cannon Ball’. Just get the hell off the tracks. Which train was coming at you can be determined later – right now that’s not the problem.” In a speech on Thursday (January 10), Fed Chairman Ben Bernanke acknowledged a weaker economy and the need for further relaxation of monetary policy. He assured the American public at large, that the Fed would “take substantive additional action as needed to support growth and to provide adequate insurance against downside risks”. However, this was cold comfort for The Street as Stock Trader’s Almanac pointed out that 11 of the last twelve easing periods have proved to be tumultuous times for the markets. It certainly does not inspire confidence when considering that the S&P 500 Index registered its worst performance on record (i.e. since 1950) for the first five trading days of 2008. Also, the fact that the Dow Jones Industrial Index closed below its December closing low (on January 2) and continues to trade below it, points to further weakness. Since 1950, 27 of 29 such occurrences saw continued declines with and average loss of 10.1%, according to Stock Trader’s Almanac. Before highlighting some thought-provoking news items and quotes from market commentators, let’s briefly review the financial markets’ movements on the basis of economic statistics and a performance chart. Economy The annualized growth rate of the ECRI Weekly Leading Indicator continued on its way down, with Moody’s Economy.com remarking that the trajectory was increasingly looking similar to past periods preceding a recession. With a barrage of economic data coming from all corners of the world, perhaps the more insightful information was the ECB and BOE decisions to leave their benchmark interest rates unchanged at respectively 4.0% and 5.5%. Although growth in the Eurozone is slowing, inflation remains of greater concern to central bankers than a slowdown in economic activity. On the other hand, the US seems to be heading towards a half-percentage rate cut at the FOMC’s next meeting on January 30. Fed funds futures indicated an 88% chance of a 50 basis point rate cut, up from the pre-Bernanke speech level of 74%. Goldman Sachs sees three further rate cuts after January of 25 basis points each, bringing the Fed funds rate to 3.0% by mid-year. WEEK’S ECONOMIC REPORTS
Source: Yahoo Finance, January 11, 2007. The next week’s economic highlights, courtesy of Northern Trust, include the following:
Markets
Source: Wall Street Journal Online, January 13, 2007. Equities rallied on the back of Bernanke’s assurances, but it did not take long for subprime fears to resurface and most stock markets closed sharply lower on Friday. The MSCI World Index declined by 1.9% during the week, with Japanese stocks (-4.0%) falling to a 26-month low and European stocks (-2.4%) to a 13-month low. Friday’s sell-off marked the third straight weekly decline for the US stock markets, with the Dow Jones Industrial Index suffering its steepest first-eight-sessions-of-the-year slide in 17 years. The S&P 600 Small Cap Index (-2.8%) underperformed the larger caps of the S&P 500 Index (-0.8%). Defensive areas that are more resistant to an economic downturn, such as Pharmaceuticals (+3.3%) and Utilities (+1.5%), were among the few sectors registering positive returns for the week. The depth of the problems faced as a result of the subprime fallout was underscored by Bank of America’s rescue of troubled mortgage lender Countrywide Financial, Merrill’s expected additional $15 billion write-down, and Citigroup’s second capital-raising effort ($14 billion) in as many months. Government bond yields fell further around the world as the global economic outlook worsened and investors switched stocks to what is perceived to be a safe-haven asset class. However, fears that inflation could become a problem slowed the decline in long-dated maturities. On the currency front, the US dollar fell somewhat against the euro as expectations of aggressive cuts in US rates increased. Worries about the deteriorating prospects for the UK economy resulted in the British pound hitting a record low against the euro. The precious metals complex, however, was propelled higher by inflation jitters, with both gold ($898) and platinum ($1 564) recording all-time highs. Silver played catch-up and rose by 7.1% for the week compared with gold’s 3.8% and platinum’s 2.5%. Base metals and agricultural commodities also performed strongly. A report by the US Department of Agriculture warned of extremely low inventories and pushed wheat prices to an all-time high, corn prices to an 11-year high and soyabean prices to a 34-year high. Now for a few news items and some words (and graphs) from the investment wise that will hopefully assist to make sense of financial markets’ shenanigans during the week ahead.
Source: Steve Sack, Slate, January 8, 2008. Moody’s Economy.com: Survey of business confidence for world Source: Moody’s Economy.com, January 7, 2008. BCA Research: Global economy – the oil tax “While strong oil demand – especially in China and the Middle East – is contributing to the surge in crude prices, the rising world oil bill is bearish for global growth. This ‘tax’ on growth adds to pressure for major central banks to ease monetary policy. While rising oil prices have temporarily push up headline inflation, the impact of crude on price pressures may already be peaking. Bottom line: High oil prices will require more aggressive stimulus from policymakers in order to support economic growth.”
Source: BCA Research, January 7, 2008. James Quinn (Telegraph): US recession is already here, warns Merrill “David Rosenberg, the bank’s chief North American economist, argues that a weakening employment picture and declining retail sales signal the economy has tipped into its first month of recession. Mr Rosenberg, who is well-respected on Wall Street, argues: ‘According to our analysis, this [recession] isn’t even a forecast any more but is a present day reality.’ “His comments are the strongest sign yet that the gloom on Wall Street over the US economy is deepening as the sub-prime mortgage crisis and the credit rout show little sign of easing. “Mr Rosenberg points to a whole batch of negative data to support his analysis, including the four key barometers used by the National Bureau of Economic Research (NEBR) – employment, real personal income, industrial production, and real sales activity in retail and manufacturing. … he believes that all four of these barometers ‘seem to have peaked around the November-December period, strongly suggesting that we are actually into the first month of a recession.’” Source: James Quinn, Telegraph, January 8, 2008. Ambrose Evans-Pritchard (Telegraph): Bush convenes Plunge Protection Team “It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes and key credit levers. And it has the means to fry ‘short’ traders in the hottest of oils. “The team is led by Treasury chief Hank Paulson, ex-Goldman Sachs, a man with a nose for market psychology, and includes Fed chairman Ben Bernanke and the key exchange regulators.
“Judging by a well-briefed report in the Washington Post, a mood of deep alarm has taken hold in the upper echelons of the administration. ‘What everyone’s looking at is what is the fastest way to get money out there,’ said a Bush aide. Emergency measures are now clearly on the agenda, apparently consisting of a mix of tax cuts for businesses and bungs for consumers. “‘In terms of any stimulus package, we’re considering all options,’ said Mr Bush. This should be interesting to watch. The president is not one for half measures. He has already shown in Iraq and on biofuels that he will pursue policies a l’outrance once he gets the bit between his teeth.” Source: Ambrose Evans-Pritchard, Telegraph, January 8, 2008. Continue reading Words from the wise for the week that was (Jan 7 – 13, 2008) By Prieur du Plessis, on December 30th, 2007 posted in: Bonds, Business, China, Commodities, Currencies, Economy, Emerging markets, Equities, Finance, Gold, Housing, Investment, Markets, Money, Oil, Stocks, US dollar, Wall Street 4 people had their say - chime in!
This week’s edition of “Words from the Wise” is briefer than most as I must answer the call of family to spend a last few days with them before putting shoulder to the 2008 wheel. My kids have asked me to help them fly a kite, but the wind seems to be a bit too gusty to achieve this with much success. This makes me wonder how stock markets are going live through the various tailwinds and headwinds that will invariably come to blow during 2008. In the words of market veteran Richard Russell, author of the Dow Theory Letters: “This market cannot make up its mind. The bullish case is strong, the bearish case is strong, and a lot of very big money is very divide on the outlook for the stock market. Thus – we have a very nervous, high volatility market with the Dow jumping over 100 points (up or down) every other day. It’s enough to give an honest man the ‘willies’.” And in the spirit of the holiday period, David Galland of Casey Research observed: “… we have the US stock market, which, despite the energetic efforts of government on many levels, is stumbling along like a blind drunk after a long and well-lubricated holiday season party. One minute, Mr. Market has a big happy smile on his face, but the next he’s flat on his face. Struggling to his feet, he is barely able to whisper an ebullient toast before tripping over his own shoes and falling back to the ground.” I will be watching the market carefully as 2007 fades out and the New Year comes in. The market action during the few days of December and January often provides hints regarding the rest of the year. For example, if the so-called “Santa Claus Rally”, which has one more trading day remaining in 2007 and two more in 2008, does not materialize, it typically is a harbinger of a sizeable correction or bear market in the coming year. The “January Barometer”, stating that as the S&P 500 Index goes in January so goes the year, will also be watched with more than a cursory glance. Furthermore, the best years for stock market gains have been years ending in 5, with the second best years being those ending in 8. Since 1891 there have been only two years ending in 8 that were negative, namely 1948 when the Dow was down 2.1% and 1978 when the index declined by 3.2%. Here’s wishing you a wonderful New Year. May it be truly joyful and exceptionally rewarding on all fronts. Before highlighting some thought-provoking news items and quotes from market commentators, let’s briefly review the market’s ups and downs on the basis of economic statistics and a performance chart. Economy An international crisis could not have appeared at a worse time with the global financial system appearing to be an unpredictable black hole. Also, further evidence of worsening economic conditions came in the form of new home sale tumbling by 9% in November to the slowest pace in 12 years and durable goods orders rising a disappointing 0.1% in November. More reassuring data on US mid-west manufacturing activity were largely brushed aside. All this was piled on top of mounting concerns about more banking write-downs, rising inflation and a deteriorating outlook for economic growth.
Source: Yahoo Finance, December 28, 2007. The next week’s economic highlights, courtesy of Northern Trust, include the following:
Markets Source: Wall Street Journal Online, December 30, 2007. US stock market indexes declined modestly during the past week on the back of increasing economic woes and worries about the situation in Pakistan. The worst casualties were REIT stocks (-2.1%), small caps (-1.8% in the case of the Russell 2000 Index) and financials (-1.2%). Energy (+1.4%), however, brought investors some joy. The MSCI World Index recorded a gain of 1.1% for the week as a result of the strong performance of emerging markets (+2.6%), and also a small positive contribution from the Japanese Nikkei 225 Average (+0.3%). On the currency front, the US dollar had its worst week in a year as the poor economic statistics increased expectations of more interest rate cuts, resulting in the US Dollar Index declining by 2.0%. Similarly, sterling hit its lowest level in one-and-a-half years against a basket of currencies after a report of slower growth in house prices raised expectations of interest rate cuts early in 2008. On the positive side, the euro, the Swiss Franc and Chinese renminbi increased strongly. As far as money markets were concerned, the three-month dollar Libor rate eased to its lowest level since February 2006 and the three-month euro rate was set at its lowest level since November 22. Government bond yields declined during the course of the week, benefitting from more safe-haven buying. The oil price came within sight of its all-time high after US fuel inventories fell more than expected and in reaction to tension in Pakistan and northern Iraq. Gold, fulfilling its role as a safe-haven investment in times of political uncertainty and a hedge against inflation, jumped by 3.4%. Silver (+2.8%) was in hot pursuit, but platinum (+0.3%) lagged somewhat after having hit a record on Thursday. Although agricultural and base metal commodities experienced some profit-taking, the Dow Jones-AIG Commodity Index still managed a 1% gain for the week. Now for a few news items and some words (and graphs) from the investment wise that will hopefully assist to make sense of financial markets’ shenanigans during the shortened week ahead. John Carney (Dealbreaker): Why Bhutto’s assassination is very bad news
Sources: John Carney, Dealbreaker, December 27, 2007 (text); and Bloomberg, December 27, 2007 (photo). ABC News: US checking al Qaeda claim of killing Bhutto “An obscure Italian Web site said Mustafa Abu al-Yazid, al Qaeda’s commander in Afghanistan, told its reporter in a phone call, ‘We terminated the most precious American asset which vowed to defeat [the] mujahedeen.’ It said the decision to assassinate Bhutto was made by al Qaeda’s No. 2 leader, Ayman al Zawahri in October. Before joining Osama bin Laden in Afghanistan, Zawahri was imprisoned in Egypt for his role in the assassination of then-Egyptian President Anwar Sadat. “Bhutto had been outspoken in her opposition to al Qaeda and had criticized the government of President Pervez Musharraf for failing to take strong action against the Islamic terrorists. ‘She openly threatened al Qaeda, and she had American support,’ said ABC News consultant Richard Clarke, the former White House counterterrorism adviser. ‘If al Qaeda could try to kill Musharraf twice, it could easily do this,’ he said.” Source: Brian Ross, Richard Esposito and R. Schwartz, ABC News, December 27, 2007. Times Online: Main Bhutto suspects are warlords and security forces “But fingers will also be pointed at the Inter-Services Intelligence agency, (ISI) which has had close ties to the Islamists since the 1970s and has been used by successive Pakistani leaders to suppress political opposition. Ms Bhutto narrowly escaped an assassination attempt in October, when a suicide bomber struck at a rally in Karachi to welcome her back from exile. “Ms Bhutto said after the attack that she had received a letter, signed by someone claiming to be a friend of al-Qaeda and Osama bin Laden, threatening to slaughter her like a goat. But she also accused Pakistani authorities of not providing her with sufficient security, and hinted that they may have been complicit in the Karachi attack.” Source: Jeremy Page, Times Online, December 28, 2008. Continue reading Words from the wise for the week that was (Dec 24 – 30, 2007) By Prieur du Plessis, on December 28th, 2007 posted in: Business, Commodities, Currencies, Economy, Emerging markets, Equities, Finance, Gold, Investment, Markets, Money, Oil, Stocks, Sub-prime, US dollar, Wall Street 11 people had their say - chime in!
I read a great many reports from investment strategists and other market gurus, but a firm favorite always remains Donald Coxe, Global Portfolio Strategist of BMO Financial Group. I largely share Donald’s investment recommendations as published in the December edition of Basic Points, entitled “Double, Double, Greed and Trouble, CDOs and Housing Bubble”, and have therefore thought it appropriate to republish these eloquently written paragraphs below.
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– now history with the Dow down to 10,067.
ECRI Leading Indicator: Turning for the better?
Roach on U.S. economy, Fed policy, China, Europe
Prieur’s Readings (Jan 30, 2012)
European choices
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