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Investors last week faced a tug of war between signs of an improving U.S. economy and lingering concerns about Europe’s debt malaise. The Euroland worries moved to center stage on Friday when Standard & Poor’s downgraded the credit ratings of France, Austria, Italy, Spain, Portugal and four other European countries. Also denting sentiment were rumblings out of Greece, suggesting that the recently agreed bailout terms were now in doubt. After starting off the year better than any other since 2006, the S&P 500 Index had its worst day of the year on Friday, but nevertheless remained in positive territory for the week as a whole. Trading on stock markets during the second week of 2012 was again characterized by light volume, but it was nevertheless a good week for most risky assets such as stocks, corporate bonds, and precious and industrial metals. Equities gained ground for the second consecutive week as shown by the performance of the two principal global equity benchmarks: the MSCI World Index closed 0.8% higher and the MSCI Emerging Markets Index surged by 2.8%. In a clear reversal of last year’s pattern, emerging markets have so far this year outperformed developed markets by a factor of 2.5. Click on the table below for a larger image. On the issue of mature versus emerging markets, well-known investor Marc Faber said: “What we had in 2008 was the outperformance of the U.S. and emerging economies’ stock markets and commodity markets got hit very hard, but it lead to a major low in emerging stock markets that bottomed out between October 2008 and March 2009. After that emerging stock markets outperformed the U.S. until the end of 2010. So I think we may get a similar picture. I read all the strategies that say we should invest in the U.S. I say maybe that’s correct for the next three months or so but I would rather be looking at an entry point in emerging markets over the next six to nine months.” As far as the U.S. is concerned, all the benchmark indices ended the week in positive territory, with the S&P 500 and the Dow Jones Industrial Average gaining 0.9% and 0.5% respectively. But the real star was the Russell 2000 Index that improved by 1.9%. This is a good sign for the overall market as outperformance by small caps is normally associated with rising markets. Al the U.S. indices are also higher for the year to date, ranging from +1.7% to +4.1% – in the case of the tech-heavy Nasdaq Composite Index. When one considers the 10 economic sectors of the S&P 500 Index, it is clear that the cyclical sectors were the stronger ones over the past few days. These are sectors such as Materials (+3.9%), Financials (+3.1%) and Industrials (+2.6%). Not shown, Homebuilders (+7.5) surged on the back of Lennar reporting a solid increase in new orders. The lagging sectors were the defensive ones such as Utilities (-0.4%) and Consumer Staples (-0.3%). Energy also fared badly and was down by 1.4%. This pattern of cyclical sectors outperforming defensive sectors is what one would expect in the bull phase of a stock market. Source: U.S. Global Investors – Investor Alert Moving beyond the U.S., most stock markets ended the second week of the year in the black. Among mature markets, strong performers included Singapore (+2.8%), Australia (+2.2%), France (+1.9% – notwithstanding the country’s credit rating cut) and, surprisingly, Spain (+1.9%). In the emerging markets category China at long last rebounded, closing 3.7% higher. Also performing well were Hong Kong (+3.3%) and Brazil (+2.3%). The notable downmarkets included Portugal, New Zealand, Holland and the U.K. Prior to last week’s improvement, the Shanghai Stock Exchange Index dropped by more than 30% from its high of August 2010. The trigger for the turnaround was Chinese bank loans and M2 money supply both rising more than expected as Chinese officials started taking action to stimulate the economy. Chinese equities look attractive from a valuation point of view and it would seem that investor concerns about slowing economic growth and a further shake-out in the property market have already been discounted by stock prices. More on this topic (What's this?) Crisis in Europe: Prepare for Repercussions from Standard & Poor's Credit Rating Downgrades (Money Morning, 1/13/12) The EU’s Great Kowtow to China (Wall Street Daily, 2/2/12) Prepare for Europe – "It's Going to Be Ugly" (Money Morning, 1/16/12)
In this episode of The Keiser Report, Max Keiser and co-host, Stacy Herbert discuss death by a thousand revelations and destroying the City to save the City. In the second half of the show, Max talks to author Nomi Prins, a former investment banker, about the role of JP Morgan in Jon Corzine’s MF Global crime. Source: The Keiser Report, YouTube, January 12, 2012. More on this topic (What's this?) Hotspots with Max Keiser - Ireland (Finance Documentaries, 10/22/11) Humongous Provincial Tax Credits for Student Graduates (Canadian Financial DIY, 12/10/11) Max Keiser: Pirates, protesters and ponzi schemes (Wall Street Sector Selector, 10/15/11)
Former Governor Eliot Spitzer talks about the type of greed that could be good for America – “long-term greed.” Visit msnbc.com for breaking news, world news, and news about the economy Source: Msn.com, January 13, 2012 (hat tip: The Big Picture).
William Cohan, author of “Money and Power: How Goldman Sachs Came to Rule the World”, talks about an article in a recent Journal of Business Ethics that blames the financial crisis on corporate psychopaths at the helm of financial institutions. Source: Bloomberg, January 4, 2012.
Source: DopeyCowboy.com (via YouTube), January 2, 2012 (hat tip: The Big Picture).
This post is a guest contribution by Dian Chu, market analyst, trader and author of the EconMatters blog. Public Relations people at Goldman Sachs can not be too happy about this. Fadel Gheit, a financial and oil and gas industry veteran dating back to the Mobil era, went on record and called the Big Banks–Goldman Sachs along with Morgan Stanley–out on manipulating the oil market during a Bloomberg TV interview on May 25. Both Goldman Sachs and Morgan Stanley published notes on Monday, May 23, to clients recommending taking a long position on Brent crude oil. Specifically, Goldman boosted its year-end target for Brent by 20% to $120 per barrel from $105 and its 2012 forecast to $140 from $120. Goldman also raised its three-, six-, and twelve-month Brent price target to $115, $120 and $130 a barrel respectively. Morgan Stanley raised its 2011 Brent crude price forecast to $120 per barrel from $100 a barrel, and its 2012 forecast to $130 from $105. Although the firm was not mentioned in the Bloomgerg interview, JP Morgan also reiterated its forecast that Brent should reach $130 a barrel by the third quarter of 2011. Remember Goldman was the one telling clients on Monday April 11 to liquidate “CCCP” commodities basket for a 25% profit, which partly prompted a broad selloff in commodities including crude oil. Furthermore, at the time, Goldman said Brent would correct towards $105 a barrel in coming months. So this flip flop just a short six weeks later not only contradicts to some of the macroeconomic projection of Goldman itself, but also prompted a fire storm of criticism even from its peers. (Morgan Stanley at least has been consistent with its commodity bullish position.) I’d imagine Goldman’s surprise bear call in April probably threw a lot of investment houses under the bus as most of them are consistent in their long commodity call, and most likely invest and advise clients accordingly. Here are some notable quotes from Gheit:
Now that’s a punch that packs a wallop and tell it like it really is, pointing squarely at the real bigger fish than the three small companies and two oil traders that CFTC (Commodity Futures Trading Commission) are suing right now. Source: YouTube, May 25, 2011. Source: Dian Chu, EconMatters, May 27, 2011. More on this topic (What's this?) 2012 Oil Price Outlook: How to Profit From $150 Oil (Money Morning, 1/6/12) The Best Energy Trades for 2012: Part II (Wealth Daily, 12/10/11) The Keystone Oil Pipeline: Rejected and Revived (Wall Street Daily, 1/30/12) | ||||||||||||||||||||||||||||||||||||||||||||||
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