Man, is it just me, or has this summer gotten progressively whackier with each passing week? This was another roller coaster ride, where the final tally belies the underlying action.
By the numbers,there were two big winners: Emerging markets popped for 4.5%, and Crude Oil gained 4.1%. European stocks and emerging market bonds also gained, tacking on 1.5% and 1.0% respectively. REITs, Global stocks, the Nasdaq, commodity futures, Gold, US Treasuries, Corporates and Junk bonds all gained less than 1.0%, while the US dollar finished the week unchanged.
The Dow slipped 0.2%, the S&P500 lost 0.4%, while the Russell2000 brought up the year, down 0.8%. All things considered, the losses were rather tame, given the week’s mayhem.
Barron’s Trader column points out that:
"How profits hold up in the wake of tightening credit will determine stocks’ trajectory this fall. "Neither a significant margin squeeze nor a recession is in the price," says Morgan Stanley’s chief U.S. economist, Richard Berner. So "the extent of earnings disappointment will matter."
Its a long holiday weekend, and I know you have beaches and barbecues to get to. Let’s get busy:
INVESTING & TRADING
• Fed to Weigh Markets Turmoil: The Fed won’t bail investors out of their bad decisions but will act if market turmoil threatens economic growth, Bernanke said. Mr. Bernanke’s much-anticipated speech solidified investor expectations the Fed will cut its target for the federal-funds rate — charged on overnight loans between banks — from 5.25% when policy makers meet Sept. 18. Markets see some probability the rate will drop to 4.75% but several economists said a drop to 5% is more likely, accompanied by a statement suggesting more cuts could come. Those expectations helped boost stocks. (Wall Street Journal) See also Economists react to the Fed Chair’s speech.
• Barron’s, The Economist, and I all saw yesterday’s White House Rose Garden address as a political, and not economic event:
• When Bulls and Bears Act Unruly on a Seesaw: Does it make sense for stock prices to plunge one day and soar the next, with little in the way of new information to explain either move? Maybe not, but it happened this week, just as it did earlier in August. It was the first time in more than four years that the American stock market experienced such wild swings, and could be a harbinger of a reversal of direction in either the stock market or the economy, or both.Or it could just show that changes in the financial system have left many investors confused about what is going on. (New York Times)
• How deos this recent correction compare to prior action? A Historical Perspective of Recent Bear Markets
• Tech — That’s Right, Tech — Is the New Haven: CRISIS? I DON’T SEE NO STINKIN’ CRISIS. Oh, I understand that the rest of you, in Manhattan, and Washington and Dubuque, you all seem to be having trouble with these subprime mortgage thingamajigs. But out here in Silicon Valley where the geeks, nerds, coders and billionaires live, I simply can’t find any signs of a crisis at all.I mean, have you looked at the big-cap tech stocks lately?
• Top 25 Quotes on the Credit Crisis of ’07: The financial market globally is up to its elbows in one of the strangest and most complicated credit crises in history. Events have come in rapid succession with mind-numbing effect. No sooner does the dust settle in one part of the market than it is kicked up in another. Through it all, the reactions on the part of the participants have been the stuff of a good financial thriller.
• A look at Market Breadth – Sector A/D Lines
• Why balance sheets are not in good shape: One frequent claim used to calm fears in the recent market turmoil has been that "corporate balance sheets are in good shape". Judging from the published accounts of companies the claim is justified; judging from national accounts it is not. This marked divergence depends on the different conventions used. In broad terms, national accounts assume that assets are worth their cost of production, adjusted for inflation, after a deduction for depreciation, while corporate accounts seek to allow for market prices whenever -possible. (FT)
• Real Money’s David Merkel on how The Liquidity Noose Tightens
• Further fiasco:
A supposedly conservative bond fund managed by the investment arm of
State Street Corp. lost more than a third of its value in a matter of
weeks amid the turmoil in credit markets this month, according to an
investor who has seen the returns. The State Street Limited Duration
Bond Fund, which managed $1.4 billion for institutional clients, lost
about 37 percent of its value during the first three weeks of August,
according to the investor. The fund, managed by State Street Global
Advisors, had fallen 42 percent for the year by Aug. 21, the investor
said. (Boston Globe)
The Wall of worry continues to build:
• Wages Up in China as Young Workers Grow Scarce: Chinese wages are on the rise. No reliable figures for average wages exist; the government’s economic data are notably unreliable. But factory owners and experts who monitor the nation’s labor market say that businesses are having a hard time finding able-bodied workers and are having to pay the workers they can find more money.And higher wages in China are likely to lead to higher prices in the United States — at the mall, at the grocery, even at the gas pump. (New York Times) See also: India’s Economic Growth Accelerates, Pressuring Rates
• Labor Picture Is Clouded: The Situation: Employment of temporary workers has
dropped for the last six months, driven by lower demand for office and
industrial workers. Use of temps is often viewed as a
leading indicator for the overall job market, as companies cut temps before
full-time workers on their payrolls. The U.S. job market might be on the
verge of softening further, but lately the overall job market hasn’t directly
followed the temp market. (Wall Street Journal)
• Bernanke Opts for Tough Love and Targeted Cure: You’ve got to hand it to Ben Bernanke, who stepped into some oversized, perhaps overrated shoes when he succeeded Alan Greenspan as Federal Reserve chairman in early 2006.In some circles, the Princeton prof was considered too naive for the task. An academic for most of his career, Bernanke studied and wrote about the Great Depression, which is a lot different from steering the economy through one or walking financial markets back from the brink. (Bloomberg)
• Watching Matt Drudge:
He hides, but craves attention. He is prurient and prudish, powerful
and paranoid, an icon of the right who seems obsessed with making
Hillary Clinton our next president. And he has America caught in the
grip of his contradictions. (New York Magazine)
• The other side of carbon trading: Planting trees in Mount Elgon National Park in eastern Uganda seemed like a project that would benefit everyone. The Face Foundation, a nonprofit group established by Dutch power companies, would receive carbon credits for reforesting the park’s perimeter. It would then sell the credits to airline passengers wanting to offset their emissions, reinvesting the revenues in further tree planting. The air would be cleaner, travelers would feel less guilty and Ugandans would get a larger park. But to the farmers who once lived just inside the park, the project has been anything but a boon. They have been fighting to get their land back since being evicted in the early 1990s and have pressed their case with lawsuits. (Fortune)
• More than 1,800 Iraqis killed in August:
Civilian deaths rose slightly in August as a huge suicide attack in the
north two weeks ago offset security gains elsewhere, making it the
second deadliest month for Iraqis since the U.S. troop buildup began,
according to figures compiled Saturday by The Associated
Press.ADVERTISEMENTU.S. deaths remained well below figures from last
winter when the U.S began dispatching 30,000 additional troops to Iraq.
• Alberto Gonzales Fall From Grace (The Economist)
TECHNOLOGY & SCIENCE
• Inside the Googleplex: IN AMERICA a phenomenon might claim to have entered mainstream culture only after it has been satirised on “The Simpsons”. Google has had that honour, and in a telling way. Marge Simpson types her name into Google’s search engine and is amazed to get 629,000 results. (“And all this time I thought ‘googling yourself’ meant the other thing.”) She then looks up her house on Google Maps, goes to “satellite view” and zooms in. To her horror, she sees Homer lying naked in a hammock outside. “Everyone can see you; get inside,” she yells out of the window, and the fumbling proceeds from there.
• Japan’s Warp-Speed Ride to Internet Future:
Americans invented the Internet, but the Japanese are running away with
it. Broadband service here is eight to 30 times as fast as in the
United States — and considerably cheaper. Japan has the world’s
fastest Internet connections, delivering more data at a lower cost than
anywhere else, recent studies show. (Washington Post)
• Bird flu can be transmitted between humans: Researchers have now proven that bird flu has finally mutated and can be transmitted from person to person. The outbreak occurred in 2006 in Indonesia.Experts at Fred Hutchinson Cancer Research center in Seattle used statistical analysis and a computerized disease-transmission model to show the disease spread between a small number of people in one family (KING5.com)
MUSIC BOOKS MOVIES TV FUN!
• I have a few interesting ideas about some books you are going to want to read this fall. Expect an interesting announcement here next week!
• RIAA v. The People: Four Years Later (Electronic Frontier Foundation)
• In last week’s fest, a NYMag article noted the
score from Terry Gilliam’s "Brazil" was showing up everywhere. Several reades pointed out that the theme is not Michael Kamen’s creation, but
rather an adaptation of Tommy Dorsey’s "Brazil", which you can
• Partial Face Transplants Pictures Gallery: Amusingly photoshopped combinations of celebrity faces.
The weather looks to be utterly gorgeous all weekend, so I will be taking the XSR48 out to enjoy the surf and waves! Have a great holiday weekend!
Category: Financial Press