This is from Barron's weekly stock market report (subscription required). Notice the market hit intra-day highs 4 times last week, but could not hold these highs to the clo...
Saturday, June 30, 2007
Friday, June 29, 2007
Construction Spending Increases
From CBS MarketWatch:Spending on U.S. construction projects jumped 0.9% in May, the most since February 2006, boosted by hefty gains in spending on federal and private nonresidential construction projects.The gain outpaced economists' expectations. Analysts surveyed by MarketWatch were expecting construction spending to rise by just 0.1% in May. See...
Consumer Spending Increases .5%; Core PCE At .1%
From Bloomberg:Consumer spending in the U.S. rose less than forecast in May and the Federal Reserve's preferred inflation gauge cooled, a sign moderating growth is restraining price pressures.The 0.5 percent rise in spending matched the gain in April, the Commerce Department said today in Washington. Core prices, which exclude food and fuel costs, rose at the slowest pace since March 2004 in the year ended May.The figures may comfort Fed policy makers, who said yesterday that inflation remained their biggest concern pending more evidence of a sustained...
New Chancellor
Gordon Brown, now the new Prime Minister, has finally had to relinquish his role as Chancellor after a ten year stint.In his place he as appointed long time friend and associate, Alistair Darling.Those of you expecting major changes in economic policy will be sorely disappointed. Darling's arrival in the Treasury confirms that there will be no major change in economic policy.Darling was appointed as Brown's deputy in the Treasury 10 years ago.In 1998 he was appointed Social Security Secretary, after Harriet Harman was fired and Transport Secretary...
Thursday, June 28, 2007
A Weekly Look At the SPYs
Here is a 5-year chart of the SPYs, this time using a weekly chart and the MACD. Notice the last time the MACD was at this level was after an impressive gain -- the index ran from about 82 to 115 over a 12 month period, or an overall gain of 40.24%. After that run, the index consolidated for six months. This time, the index rose from 125 to 150,...
Fed's Statement
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters.Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has...
Bonddad's Fed Prediction
OK -- I'm going on the record.1.) The Fed won't raise raise rates (this is a no brainer).2.) There will be a statement that inflation is still the Fed's main conce...
Kia Motors Pulls Debt Offering
There has been a rash of deals getting pulled off the market lately. Kia is just the latest example:Kia Motors Corp., South Korea's second-largest automaker, canceled a $500 million bond sale for this week as skittish investors cut demand for riskier assets.The total amount of debt being taken off the market is increasing: At least eight companies from Kohlberg Kravis Roberts & Co. in New York to steelmaker Arcelor Mittal in Rotterdam, Netherlands, pulled more than $3 billion of debt sales amid concern that losses from bonds backed by U.S....
Final GDP Comes In at .7% Increase
From the BEA:Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.7 percent in the first quarter of 2007, according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.5 percent. This should come as no real surprise. While the upward tick is nice, it still indicates growth in the first quarter was terrible.Let's look a bit deeper into the numbers to see what we have.Real personal consumption...
Are the Financial Markets Able to Withstand Recent Shocks?
Over the last few days there's been a lot of discussion about a possible change in overall market sentiment. It started with the problems at the Bear Hedge funds. This was followed by several large canceled debt deals because borrowers demanded stricter lending terms. From today's WSJ:There wasn't any similar-sized stumble yesterday. But Catalyst...
Excess Charges Mass Hearing
Today will see a record number of people have their claims for the return of bank overdraft charges dealt with at Leeds Mercantile Court.Around 200 cases have been scheduled to be heard, though some have been settled at the last minute. Over the last 12 months there has been a surge in mass litigation, whereby angry bank customers have sued their banks for the return of the charges they have had to pay for having an unauthorised overdraft. Banks have attempted to settle all the cases against them, rather than contest one before a judge; as they...
Wednesday, June 27, 2007
Health Care to the Rescue?
Here is the same type of chart as the XLF below. It's a three year chart of the health care ETF (XLV) with the MACD. Notice the MACD has been at this level or below 6 times in the last three years including this time. The index rebounded strongly 4 of those times and the fifth time it rebounded after about 2 months. This play makes more sense in...
Will The Financials Snap Back?
Here is a 3 year chart of the XLF tracking stock plus the MACD indicator. Notice that each time the MACD has touched the -.2 level over the last 3 years, the XLF has snapped back with a fairly decent gain over the next few months. Because financials are the largest sector in the S&P 500, this could bode well for the coming months.However, it's...
Durable Goods Orders Decrease
From the Census Bureau:New orders for manufactured durable goods in May decreased $6.1 billion or 2.8 percent to $213.0 billion, the U.S. Census Bureau announced today. This followed three consecutive monthly increases including a 1.1 percent April increase. Excluding transportation, new orders decreased 1.0 percent. Excluding defense, new orders decreased 3.2 percent.From Bloomberg:Orders for U.S. durable goods fell more than forecast in May, casting doubt on the strength of a projected rebound in business investment.Demand for goods meant to...
Is Credit Drying Up
From the WSJ:Underwriters pulled a $1.55 billion bond offering by U.S. Foodservice, the nation's second-largest food distributor. The company also postponed plans to sell $2 billion in loans to fund the deal, according to people familiar with the matter. For now, the banks involved in underwriting the deal will have to lend the $3.6 billion directly to U.S. Foodservice, which is being bought from Royal Ahold NV of the Netherlands.....While the banks will try to resell the loans and bonds to investors in the year ahead, the FoodService deal could...
Outsourcing To China
Those of you who are fed up with ringing your "local" bank or financial institution hoping to talk to a "local" operator, only to find yourselves talking to an operator based in India, may be less than happy to learn that the fetish for outsourcing financial services helplines etc continues.Indeed, the call centres are likely to be moved even further away from the UK, as the Chinese have now been identified by financial institutions as a source of even cheaper labour.A report, titled Global Financial Services Offshoring Report 2007, issued by Deloitte...
Tuesday, June 26, 2007
Three More Charts
There are three more charts in addition to the SPYs that should cause concern. Financials comprise 20% of the S&P 500. The last week of trading has really taken of toll on this sector. Today it closed below it's 200 day SMA. Also note that volume has been heavy the last three days, indicating traders are getting out of the sector largely because...
The SPY Chart
Here is a chart of the SPYs that included today's close. Notice a few important things.1.) The SPYs closed below support established in early June2.) The average is below the 50 day SMA3.) The last three days of selling have occurred on high volume.In addition, note the post below. Two technical indicators (the MACD and CMF) are negative and the...
Three Technical Indicators and the SPYs
Here are three charts of the SPY with a separate technical indicator. The daily MACD is declining, and has been declining since early May:The Chaiken Money Flow indicates money is leaving the market and has been for about a month:The on balance volume has been neutral for some about the same length of ti...
Home Prices Drop The Most In 16 Years; New Home Sales Fall
From CBS Marketwatch:Home prices in 10 major U.S. cities dropped at the fastest pace in 16 years during the 12 months ending in April, according to Standard & Poor's Case-Shiller home price index released Tuesday.Home prices in the 10 cities fell 2.7% on a year-over-year basis, the largest decline since September 1991. Meanwhile, prices in 20 cities dropped a record 2.1% year over year.Price appreciation has slowed for 17 consecutive months. Nationally, prices have doubled since 2000.Fourteen of the 20 cities showed falling prices in the past...
Lennar Earnings Drop; Gives Weak Guidance
From Bloomberg:Lennar Corp., the largest U.S. homebuilder, reported a loss for the fiscal second quarter as the housing slowdown discouraged buyers and prompted price reductions.The net loss amounted to $244.2 million, or $1.55 a share, in the three months ended May 31, compared with a profit of $324.7 million, or $2, a year earlier, Miami-based Lennar said today in a statement. Revenue tumbled to $2.88 billion from $4.58 billion.Rising defaults among subprime borrowers and mortgage rates near an 11-month high are hampering sales for homebuilders...
Refineries Are Shutting Down Longer Adding to High Gas Pressures
From the WSJ:Refiners say there are a variety of reasons behind the lingering outages, including tougher federal clean-fuel standards. But industry observers also cite wear and tear on aging equipment in a nation where no new refinery has been built since the 1970s.Because capacity hasn't grown as much as demand in the past few years, refiners have...
And Then There Were Two
As in funds with problems because of the subprime market:LONDON (Thomson Financial) - Queen's Walk Investment Ltd posted a net loss for the year ended March 31 mainly as a result of fair value adjustments made toinvestments in 2007. The group posted a net loss of 67.7 mln eur for the full year while net asset value decreased to 7.24 eur as at March 31, 2007 from 9.90 eur as at Dec 31, 2006. It had reported a net profit of 9.77 mln eur for the period from Sept 6, 2005 to March 31, 2006. The first full-year results as a public company...
US Launches Probe Into BAE
The US Department of Justice has launched a formal anti-corruption investigation into BAE Systems' alleged payments of bribes to a Saudi prince, in return for a lucrative contract.The allegations concern multi-million pound payments to Prince Bandar, a leading member of the Saudi royal family, as part of the Al Yamamah Tornado jet deal.The investigation will look at BAE's compliance with anti-corruption laws, "including the company's business concerning the Kingdom of Saudi Arabia".BAE shares have fallen 6% in opening trading today, as a result...
Monday, June 25, 2007
SEC Investigates Bear Fund
From Business WeekBear Stearns (BSC) may have a lot of explaining to do about a big restatement of losses at one of its troubled hedge funds—and not just to its investors. BusinessWeek has learned that the Securities & Exchange Commission recently opened a preliminary inquiry into the near-collapse of Bear Stearns' High-Grade Structured Credit Strategies Enhanced Leveraged Fund. People familiar with the inquiry say regulators are interested in learning how the Wall Street investment firm came to dramatically restate the April losses for the...
Bear to Close Hedge Funds?
From CNBC:Two large hedge funds managed by investment bank and brokerage Bear Stearns are close to being shut down as their complex mortgage-related bets have soured, the Wall Street Journal reported.The Journal said the two funds held over $20 billion of investments just a few weeks ago, mostly tied to risky securities linked to so-called subprime mortgages.The two funds were identified by the Journal as the High Grade Structured Credit Strategies Enhanced Leverage Fund and the High Grade Structured Credit Strategies Fund.Meanwhile, CNBC's Charlie...
Existing Home Sales Drop
From Bloomberg:Sales of previously owned homes in the U.S. fell in May to the lowest level in almost four years, reinforcing concerns about a protracted housing slump.Purchases declined 0.3 percent to an annual rate of 5.99 million, from a revised 6.01 million the prior month, the National Association of Realtors said today in Washington. The supply of unsold homes jumped to a record.The housing recession, the worst since 1991, is the biggest threat to an economy that's otherwise showing signs of recovering from a yearlong slowdown. The growing...
Milk Prices to Increase
From the WSJ:The recent rise in milk prices is affecting everyone from small dairy companies like Oberweis to the nation's largest milk producers and food companies. On Friday, the Agriculture Department, which regulates the minimum milk prices received by farmers, set the price that processors will have to pay for drinkable milk in July at $20.91...
Illiquidity And the Market
From the WSJ:Investors with plenty of cash on hand, thanks to years of low interest rates, have flocked to illiquid investments in search of outsize returns, often with the help of borrowed money. Some market experts worry that investing in illiquid assets, despite their inherent risks, has become almost mainstream.In 2006, U.S. institutions such as pension funds and endowments, had about $1 of every $10 invested in less easily traded assets -- such as hedge funds, real estate and private-equity funds -- up 27% from 2003, according to consulting...
Squeeze Coming
The UK will experience a squeeze in public spending in the coming years, but the government has not made the British public aware of the hard times ahead.That at least is the view of the Treasury Select Committee, in their report on the forthcoming Comprehensive Spending Review.The report states that the government is "too timid" in stimulating a national debate on public expenditure, and has said that it should give clear indications of the decisions it is taking. Committee chairman, John McFall, said:"Our report highlights that the years of plenty...
Sunday, June 24, 2007
A Technical Look At the SPYs
This is a 5 year weekly chart. The indicator is the MACD. Notice a few things.1.) In the last 5 years, the MACD has given 5 sell signals. 4 out of 5 of these times the index has corrected.2.) The MACD looks like it is about to give a sell sig...
Random Thoughts on the SPYs
These observations are from my trading notebook. They are in no order of importance. Each observation is simply that -- an observation.- Bad week. The market was down as a result of concerns over Bear Stearns hedge fund issues. There was also a lack of economic news.- The SMAs are either neutral (the 10 and 20) or still positive (the 50 and 200).- There is support at the 149 level above 1% below the current level.- The market closed slightly below the 50 SMA on Friday.- Volume was heavy on Friday and the market lost some ground. This indicates...
Saturday, June 23, 2007
It's About the Financials
Last week we had the "Bear Stearns Sell-off" in the market. As concerns increased about the situation with Bear's hedge fund, traders sold-off issues in the financial sector. There were also some other pieces of negative financial news. Bank of America said the mortgage problems may be just beginning (Hat Tip, Calculated Risk):Losses in the U.S....
Filthy Fivers
The Bank of England's Governor, Mervyn King, has told banks that they must help replace the "scruffy" old £5 notes with brand new ones.King said that the "fiver" is in a sorry state, and is hardly ever seen in a freshly minted state.King lays the blame for the demise of the "fiver" at the doors of the high street banks. They find it easier and cheaper to stock their cash machines with ten and 20 pound notes.Therefore "fivers" remain in the banking system for twice as long as they should. Circulation of the notes has not increased in 15 years.King...
Friday, June 22, 2007
Weekend Weimar
It's back -- the weekend Weimar. I started this when I started this blog, but have stopped doing it. Well now it's back. When you see the Weimar picture, you should know the following things.1.) It's Friday2.) The market is closed3.) It's time to take a break from the economy and the markets and do anything except look at the market and economics.So...
About That Low Unemployment Rate....
Here is a chart from the St. Louis Federal Reserve's FRED system. The blue line is the civilian force and the red line is the total number of employed according to the establishment survey. Notice the blue line has remained fairly constant for the last few months while the red line has increased. That means the low unemployment rate is partly explained...
Food Prices Increasing
The Big Picture calls it agflation. I think that's a really good title because it explains the concept very clearly and succinctly. The bottom line is food prices are in the news again:May food prices rose 4.7% from a year earlier, according to the latest consumer price index. The cost of eating out rose only slightly less.The Agriculture Department...
More on Bear Stearns Fallout
From Bloomberg:``The demise of two Bear Stearns managed Leveraged Mortgage Funds could be the tipping point of a broader fallout from subprime mortgage credit deterioration that would lead to cascading de-leveraging and ultimately ending with higher rates to new mortgage borrowers,'' New York-based analysts at Bank of America Corp. including Robert Lacoursiere wrote in a report published today.Let's translate this sentence.Mortgage securities 101: Loan originators sell the vast majority of their mortgage loans to firms that securitize loans. This...
EU Condems Government Role in Equitable Life Crisis
The EU will today savage the government's handling of the Equitable Life crisis, and its failure to protect Equitable Life policyholders.Equitable Life had to close to new business in 2000, after it emerged it could not honour its policies; it went on to dramatically cut the value of customers' life savings, leaving many thousands of policyholders in deep financial trouble.Today's report marks the culmination of an 18 month inquiry by the European parliament in Equitable Life, and will call for government compensation for the many thousands of...
Thursday, June 21, 2007
Are Things Picking Up?
There have been 5 manufacturing surveys released in the last month. Below are some excerpts from each one to get an idea for where various manufacturing regions are.Philadelphia Fed sees increases:The survey’s broadest measure of manufacturing conditions, the diffusion index of current business activity, increased from 4.2 in May to 18.0 this month, its highest reading since April 2005 (see Chart). The percentage of firms reporting increases (40 percent) exceeded the percentage reporting decreases (22 percent). Demand for manufactured goods,...
Merrill Backs Away From Selling CDOs
From Bloomberg:Merrill Lynch & Co. backed away from a threat to dump about $850 million of securities it seized from Bear Stearns Cos. hedge funds, according to a person with knowledge of the firm's plans.Merrill sold a small portion of the collateralized debt obligations through an auction, said the person, who declined to be identified because the decision hasn't been announced. The firm plans to hold onto the remaining securities for now, the person said, without being more specific.The decision removes the risk that a large amount of securities...
The Market's Underlying Strength and Money Supply
From the WSJ:In just the past few years, the markets have been tested by turmoil in the automobile sector, rising global interest rates, a weakening dollar and the housing slowdown. They quickly bounced back after brief spasms of risk-aversion in every case. The last bout of jitters was just this past February, when problems in the subprime mortgage...
Agricultural Prices Increasing
The Big Picture has a story at the top of the blog on agricultural prices. It's been awhile since we looked at those charts, so lets see what a chart of the Goldman Sachs Commodity Index looks like.Here's the daily chart:Prices have spent the last 3-4 months consolidating right around the 260 level. But they have increased since then, moving above...
More of "Why the Bear Stearns Hedge Fund Story is So Important"
From Bloomberg:Merrill Lynch & Co.'s threat to sell $800 million of mortgage securities seized from Bear Stearns Cos. hedge funds is sending shudders across Wall Street.A sale would give banks, brokerages and investors the one thing they want to avoid: a real price on the bonds in the fund that could serve as a benchmark. The securities are known as collateralized debt obligations, which exceed $1 trillion and comprise the fastest-growing part of the bond market.Because there is little trading in the securities, prices may not reflect the highest...
Credit Card Fraud Decriminalised
Quite a row is breaking out over the revelation that the Home Office has lessened the criminality of credit card fraud.Victims of credit card fraud can no longer report it directly to the police.New rules came into force in April, under these rules it is now the responsibility of banks to decide which offences to pass on for investigation.Given that the banks will want to maintain their reputation for good security, and effective fraud controls, it is unlikely that they will be incentivised to report every single id theft.Cynics also suggest that...
