Succinct summation of week’s events:

Positives:

1) Bilateral intervention halts yen spike
2) China and India continue to tighten policy to offset rising commodity prices
3) Philly Fed survey best since ’84 and NY also good but old news?
4) Housing starts awful but I say good with too many existing homes for sale
5) Europe agrees to expand EFSF and gives Greece more rope. Spain sells 10 and 30 yr paper successfully

Negatives:

1) Japan cannot stabilize damaged reactors but hopes alive that they’re getting close
2) Commodity inflation still elevated as CRB back to flat on week on rebuilding bets and Libya/Bahrain unrest after mid week selloff
3) CPI, PPI and Import Prices rise above forecasts
4) Will China and India engineer a soft landing with more policy tightening
5) Housing starts awful, bad for construction
6) Europe will learn hard way that more debt on too much debt won’t end well, Moody’s downgrades Portugal to in line with S&P.

Category: Markets

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10 Responses to “Succinct Summation of Week’s Events (3.18.11)”

  1. romerjt says:

    “Housing starts awful but I say good with too many existing homes for sale.” Concerning this general area, I’d be interested in any reaction to this: Here’s what I don’t get, wishing , hoping, fretting that unemployment isn’t going down because it’s not going down until housing starts return to something close to 1.5M (down form the boom of 2M but up from the 500,000 level.

    It’s like expecting someone to run with a cast on their foot. AND the housing starts aren’t going to increase until the inventory is sold down, how long do we want this to take? I’m thinking there ought to be a government policy that twists arms to have a fire sale, swallow hard, this is going to hurt but we gotta move on. Some people will get bargains as long has they don’t all go to the bad guys, so what? Houses that are crap should be knocked down. I realize there are a lot of details that make this harder than I’m making it sound but we got to get this mess behind us to really move on.

  2. jeff in indy says:

    BR – i think you should create an index to your weekly summations: the SOWEI (summation of weekly events index). this week’s is -1 and several of the previous weeks have been negative, as well.

    now, how can we trade it?

  3. eiofsafsla says:

    BR – i think you should create an index to your weekly summations: the SOWEI (summation of weekly events index). this week’s is -1 and several of the previous weeks have been negative, as well.

    now, how can we trade it?
    h6547

  4. Andrew says:

    Performance by market cap: This week we saw a perfect reversal of last week’s order in terms of performance. This week, big cap stocks performed worst and smaller cap names held up better. Apple’s -6.1% decline on the week probably didn’t help (Apple’s market cap is $305 billion, second only to Exxon Mobil’s $404 billion in the U.S.). Keep in mind that options expiration saw the microcap and small cap names marked up sharply into the close today, which may partially explain their outperformance. Major indices are essentially flat on the year, with the S&P MidCap 400 performing best, up +2.5%, and the Russell Microcap Index performing the worst, down -2.2%.

    Valuation: I’ll echo last week’s comment: if the market is falling and these widely watched valuation measures are also falling, we can conclude that the recent decline is an equity risk premium adjustment and not an expected cash flow adjustment. Bottom-up analysts are not downgrading their assessment of prospective earnings and sales performance, in other words.

    Currencies: The Swiss franc gained an impressive +3.2% against the dollar and was the strongest major currency in the world this week. Traders sought out the safest currencies amidst the alarming sequence of events in Japan, Libya and Bahrain. The dollar did not attract a flight-to-safety bid, which is noteworthy. It seems that only financial instability supports the greenback nowadays. Note also that the major commodity currencies – the aussie, the South African rand, the kiwi, the peso and the Canadian dollar – finished dead last this week. A -7.1% drop in copper and wild volatility in energy commodities (though Brent and WTI crude both finished flat on the week) took its toll.

    Commodities: Natural gas (+7.2%) benefitted from nuclear energy’s sudden political infeasibility and the grains were strong amidst reports of Chinese buying (see “China Strikes Deal to Buy Corn from U.S.” in today’s Wall Street Journal). It was an incredibly volatile weak for commodities. Cotton prices fell for a second week after posting a +15.5% gain in the week ended March 4th. Weekly performance for cotton is as follows: -2.8% this week, -3.7% the week before, +15.5% the week before that. Cotton has posted double digit percentage gains in four separate weeks over the last four months.

    For all the political and geographical crosscurrents, crude oil and gold were virtually flat on the week. Silver fell -2.4%, however, and palladium fell -4.5%. Wheat and natural gas are the laggards year-to-date while energy products, cotton, coffee and silver are all up double digits on the year.

    Peripheral European Sovereign Debt: It was a good week for peripheral European sovereign debt for a change. Prices rallied and yields fell as last weekend’s details on the European Stability Mechanism and successful debt auctions for Spain and Portugal supported sentiment.

    Nominal Treasury and TIPS yields: Bahrain, Libya and Japan were worrisome enough to put a bid under the Treasury market and inflation breakevens barely budged.

    Credit: Credit got crushed midweek as speculation about a nuclear meltdown spread, but Thursday and Friday saw strong rebounds. Have we seen a trend change in credit? Are we in a widening trend now as opposed to a tightening one? It’s probably premature to say that.

    More on Credit (just the charts):

    Corporate bond issuance: U.S. corporations auctioned off about $11.3 billion in debt this week according to Bloomberg, while Asian (ex-Japan) corporations auctioned off $6.5 billion two weeks ago (the Asian data is reported with a one-week lag). The U.S. issuance was the second weakest of the year (February 18th through 25th was the weakest as crude oil spiked amidst Libyan violence).

    Bank activity: Bank deposits grew by $5.8 billion in the week ended March 9th and the year-over-year rate improved to 3.71% from 3.39%. Bank credit grew by $11 billion in the week ended March 9th and the year-over-year rate improved to 3.16% from 3.03%. Total repos outstanding between the New York Fed and the primary dealers increased by $21.3 billion in the week ended March 9th and the year over year rate fell to 6.16% from 8.15%.

  5. rktbrkr says:

    Farmer Ben. Driving back from Florida taking a meandering trip thru Georgia and the Carolinas I saw more overgrown farmland being cleared of decades of scrub growth than I have ever seen before,I’ve never seen anything like it before. Pretty expensive and energy intensive effort to clearcut acreage completely covered with trees. High food prices beget high farmland values. Clear it and flip it?

    Conversely I could practically count of new homes under construction in Florida, definitely less than last year when a lot of stuff was still being wound down I guess.

  6. mathman says:

    Last but not least for the week: Penn State clinches the National Division I Collegiate Wrestling Team Title for the first time since about 1957, with Cornell a close second.

  7. rktbrkr says:

    jeff in indy. FL has as many vacant units as CA & AZ combined, incredible, this is census data so it’s a little dated

  8. jeff in indy says:

    rktbrkr: my sister and bro -in-law are being transferred back to IN from tampa after building a new house there in ’05. i think ‘screwed’ is putting it mildly.

  9. Greg0658 says:

    ‘screwed’ .. maybe stealthie cap’ism .. be vigilant & watchful .. and I don’t mean to seed distrust (but) .. and to be perfectly clear would be “loose lips sink ships” and give crooksters ideas … I think its time for sea van communitys to startup – put em inside gates – and evergreen tree hedge rows – under a cell antenna on top of a wind turbine & solar panel array with battery banks in cars