Skip to main content

Posts

Showing posts from January, 2008

Rally time?

Put your rally caps on. Despite a growing sense among investors that US stocks have entered a bear market, some traders and speculators are expecting an intermediate term rally.

No sooner had I posted the article, "Yeah, it's a bear market" to Safehaven.com, than Steve Saville came right in with an article entitled, "A stock market bottom". And since Steve has been keeping a keen eye on the internals of the market, let's hear what he has to say.

To briefly summarize, Saville is looking at the possibility of a near-term stock market bottom. He bases his call on the recent preponderance of new lows on the NYSE and the expectation that a recent selling climax should pave the way for a five month-long rally.

Still, he points out that any expected rally will take place within the context of a secular bear market, and he stresses the importance of measuring market performance in real terms.

"As an aside, for the past seven years we've consistently maintai…

Yeah, it's a bear market

Last week we talked about how the US stock market's recent bearish action had spread worldwide.

Today we're going to take a look at where the US markets currently stand, and give you a quick overview of why we think US stocks have entered a bear market.

As a starting note, I should mention that we are basing our definition of a bear market not on the standard definition of an index down 20% from recent highs, but largely on the action of the market according to Dow Theory.

And according to our favorite newsletter writer and Dow Theory specialist, Richard Russell, the market has been in bear territory now for some time, as signaled by the primary bear market confirmation back on November 21, 2007.

That's where we are now. We won't know how long the bear market will last (or how severe it will prove to be), but if history is any guide, it should end in a period of public apathy or disgust towards the stock market and a resurgence of value in the markets, with shares trad…

Jukebox

Rock n' Roll, live. Enjoy this weekend's jukebox.

1. Tyrannosaurus Rex - Sara Crazy Child.

2. Black Sabbath - War Pigs.

3. The Who - Young Man Blues.

4. The Faces - Gasoline Alley/Around the Plynth.

5. Rolling Stones - Tumbling Dice.

6. Ramones - You're Gonna Kill That Girl.

Features of the week

We've compiled some of the week's most interesting articles and interviews in our, "Features of the week". Hope you enjoy them all.

1. The rogue trader who created Societe Generale's $7.2 billion trading loss was earlier described as a "computer genius".

Now Information Week says the bank "hacker" had only limited computer skills.

2. Why the current bull market in gold may surpass the 1970s run.

3. Nouriel Roubini: US in recession. Bloomberg interview.

4. A study by the Center for Public Integrity shows 935 examples of "false statements" made by top Bush Administration officials while hyping the Iraq War.

5. Fannie Mae and Freddie Mac may face $16 billion in losses due to declines in the value of subprime mortgage bonds.

6. The New York Times profiles casino billionaire Sheldon Adelson.

7. Confidence in the contemporary art market slumps 40% according to new survey.

8. Credit default swaps could weigh on banks. Article notes that counterp…

Roubini: US in recession

Video: Bloomberg interviews economist Nouriel Roubini from Davos.

Roubini says that by his reckoning, the US is already in recession. The only question now is how hard the "hard landing" will be.

Roubini feels this recession will be "much more painful, protracted and ugly than the one we had in 2001". He also notes that there is likely to be a severe slowdown in growth for the rest of the world's economies, and that China, Europe, and emerging markets will not be able to "decouple" from the US should the recession prove severe.

For more on this topic, see Nouriel Roubini's RGE Monitor blog and our recent post, "Recession in real terms".

Fed cuts rates in "emergency" move

The Federal Reserve has cut the fed funds rate to 3.5 percent, down three quarters of a point from its previous level of 4.25 percent. The discount rate was also lowered to 4 percent.

Here's more from Reuters:

Tuesday's rate cut, a week before Fed policy-makers convene for a regularly scheduled meeting on Jan. 29-30, was eye-popping in the context of the Fed's usual gradualist approach.

But the Fed still needs to do more, traders and analysts said.

"The market is telling the Fed that they have to ease more," said Martin Mitchell, head of government trading at Stifel Nicolaus & Co in Baltimore.

The Fed's biggest easing in the funds rate since October 1984 occurred while U.S. Treasury Secretary Henry Paulson called for a government stimulus package, which some analysts dismissed as being too small to revive a deteriorating economy.

In fact, more Wall Street analysts are predicting a U.S. recession this year. UBS became the latest firm to forecast the U.S. econo…

Market update

US markets are closed today, due to the Martin Luther King holiday, but I thought we'd do a bit of an international market news update and stay up to date.

Though US stocks are not trading this Monday, there seems to be enough bad news hanging over the US stock market and economy to help drive international share markets lower today.

A quick review of the news shows one downbeat headline after another and poor market performance all around. The news from Australia, Japan, the UK, and Europe shares one main theme: worries over the state of the American economy.

Here is a selection of quotes from the articles linked above.

From, "European stocks down 5.8 percent...":

European shares fell nearly 6 percent on Monday, their biggest one-day slide since the Sept. 11, 2001 attacks, as fears of a U.S. recession and more write downs in the financial sector sparked a broad-based selloff.

"This is like a panic. It's like out, out, out (of stocks). Run for cover," said Di…

Features of the week

The American consumer (formerly known as, "citizen" or, "a human being") has become an unwitting participant in a giant real-life simulation experiment. How so?

Helicopter drops of money rain down on us like manna from heaven, and the American consumer will, in turn, find ways to spend the proceeds, thereby generating economic growth. And jobs!

Or at least, that's the plan.

Let's see what kind of economic stimulus will shape our behavior in this Friday's edition of, "Features of the week".

1. Wall Street writedowns surpass $100 billion. Hat tip to Abnormal Returns.

2. Bush and Bernanke back fiscal stimulus. Spend, spend, spend!

3. "American GDP: Can we trust the BEA data?", asks Ronald Cooke.

4. Near record monetary growth and monetary inflation. John Williams of Shadow Statistics looks at reconstructed M3 money supply figures and sees an inflationary recession ahead.

5. Hong Kong and Singapore are ranked highest in economic freedom, accor…

Recession in real terms

Talk of a US recession is heating up again, and this time it seems people are taking the prospect of a slowdown more seriously.

In fact, most observers seem to have dropped the infantile "r-word" code and are now using the full word "recession". This is a grown-up step for them.

But while the mainstream is only now just catching on to the idea of an "impending" recession, there are some, like Jim Rogers and Marc Faber, who say the US is already in a recession and probably has been for some time.

The problem in identifying the true onset of a recession is that the data which most people use to measure economic growth has been manipulated. Governments routinely massage the data to make things appear better than they actually are.

So, you have unrealistic inflation numbers (especially in view of rampant money supply creation worldwide) and false GDP numbers. As a result, no one relying on fudged data can accurately assess the onset of recession or periods of…

Gold and "Summers-Barsky" theory

There was an excellent article on gold by John Dizard in the past weekend edition of the Financial Times.

Dizard's column piece, though brief, gave an informed overview of the metal's ongoing bull run, while assessing the possibility of a coming correction in the gold price.

In, "Gold is a bright prospect for the bold", Dizard draws on the opinion of one long-bullish portfolio manager and the ideas found in the "Summers-Barsky" theory to chart gold's future course.

"Mr Palmedo is one of the adherents of what gold people call “Summers-Barsky”, a theory of the relationship between gold and real returns on investment developed by two Harvard professors in 1985. One of them, Lawrence Summers, went on to become US Treasury secretary, president of Harvard University and, ultimately, an FT columnist.

Summers-Barsky, as described in their dense econometric paper, tracked and modelled the price of gold from 1730 to 1985 against interest rates, price indices …

Features of the week

Gold, grains, and interest rates. Value investors, and value traps. All this and more in our latest edition of, "Features of the week".

1. US's AAA credit rating 'under threat', says Moody's.

2. Bernanke signals deeper rate cuts ahead.

3. Gold futures rise to record $900.10 on interest-rate outlook.

4. Joseph Dancy on " 'Panic buying' in the grain markets" and record low global grain inventories.

5. Gold hits new all-time highs. Commentary on gold prices and investment demand for gold.

6. Value traps revisited. John Rubino recalls a June 2007 interview with Bearing Asset Management principals Bill Laggner and Kevin Duffy. See their comments about financial shares, brokerage stocks, and other "value traps" in the market.

7. Controlled Greed points to a video lecture series with value investors Frank Chou, Marty Whitman, Irving Kahn, and more (see "Guest Speakers" link).

8. Tune into the Financial Sense Newshour this weekend for …

Gold hits new all-time highs

Gold is making new all-time highs today, as the dollar price for spot gold rises above $890 an ounce.

Strong fund buying since the start of the new year, momentum in the key Japanese gold futures price, and the launch of a new gold contract in Shanghai helped to fuel the rise, according to Reuters.

With the recent bullish action in gold prices, I've been planning a little wrap-up of some interesting gold commentary. We hope this post will shine some interesting light on the precious metal's bull run. Let's begin.

1. Financial Times - "Gold is the new global currency". FT seems to be gradually coming around to the idea that gold is, in fact, money. Yes, Virginia, gold has been money for over 2,000 years, and it will still be here when those banknotes you hold in your wallet are nothing but museum pieces (to paraphrase Richard Russell).

2. Bloomberg - "Gold climbs to records as investors seek alternative asset". Professional investors argue over the merits o…

Ray Dalio in FT

If you stopped by FT Alphaville yesterday, you may have already seen mention of Financial Times' interview with hedge fund manager Ray Dalio, of Bridgewater Associates.

The full article is available at the link above (FT.com), and it is an interesting profile of one of the hedge fund world's most highly regarded figures. Here are a few excerpts from the piece:

"Mr Dalio, who founded his company, Bridgewater Associates, more than 30 years ago, is relentless in his pursuit of difference. He tracks his funds' correlations to the market and quickly tacks away whenever they appear to converge.

His singular view has shown results, propelling Bridgewater to become a highly regarded $150bn institutional manager as well as the third biggest hedge fund manager in the world. Bridgewater's hedge funds typically returned about 15 per cent a year, after fees, for the past 15 years. In 2007 the performance range was 9 to 11.2 per cent, net of fees, for its three hedge funds, a res…

Ron Paul on Leno, Bloomberg

Presidential candidate Ron Paul flew down to L.A. yesterday to appear on the Tonight Show with Jay Leno. Video clips of this appearance courtesy of DailyPaul.com.

Paul was denied entrance to a Fox News sponsored "forum" debate in New Hampshire last Sunday night. Uproar over the move led the New Hampshire Republican party to pull their support for the Fox "forum".

So, with the writers' strike freeing up opportunities for guest bookings, Jay invited Ron Paul over to Burbank to talk about the exclusion from the Fox debates and the growing support for his election campaign.

Paul took some quick time out from the New Hampshire primary to spread his message to America's late-night television audience, and was able to make some very important and easily comprehensible points. But don't take our word for it. Check out the interview.

Update: Ron Paul interviewed on Bloomberg TV.

Marc Faber, Jim Rogers on Bloomberg

Update: Bloomberg's July 14, 2008 Jim Rogers interview is here.

Marc Faber and Jim Rogers are featured on Bloomberg today in two individual video interviews.

Marc Faber tells Bloomberg he expects strength in the dollar over the short term, though he is still bearish on the US dollar over the longer term, and that US stocks may outperform emerging markets over the next three to six months.

He also expects commodities to peak and begin a meaningful correction in the coming weeks. Bloomberg's companion article notes that Faber has been correct on his calls to buy gold, but wrong in past calls warning of over-optimism regarding Brazilian and Argentinian shares (both commodity country plays).

Oh, and I should note that Faber specifically mentioned the media's silence regarding Ron Paul's 10 percent standing in the Iowa caucus.

Funny that people who live outside the country (in Marc's case, Thailand) should have more of an idea about what's going on in our political e…

McGovern: Bush must go

I don't really like bringing up politics too often on the blog, but I think I'd be remiss in denying the importance of George McGovern's recent editorial in the Washington Post.

George McGovern called for the impeachment of President Bush and Vice-President Cheney on Sunday in a Washington Post piece entitled, "Why I Believe Bush Must Go".

McGovern's editorial lists many of the reasons for impeachment and argues that this administration is far worse than Richard Nixon's disgraced presidency. While voicing his conviction on the need for impeachment, he recognizes that the current political climate does not favor this development:

"...there seems to be little bipartisan support for impeachment. The political scene is marked by narrow and sometimes superficial partisanship, especially among Republicans, and a lack of courage and statesmanship on the part of too many Democratic politicians. So the chances of a bipartisan impeachment and conviction are no…

Features of the week

As promised, today's "Features" post will focus on some of the key social and economic trends of 2007, while also examining the financial trends that may take hold in the year ahead.

What will the markets hold in store for 2008? We'll start down that road today in our "Features of the week".

1. $100 oil. You heard it here first from Jim Rogers.

And here's a 2006 interview with energy investor, Bill Powers that provides background on the sustained rise in crude oil and energy prices.

2. Bullish on bullion. FT weighs in with a full page article about the ongoing bull market in gold prices.

3. Marc Faber still thinks gold is a good place to put your money.

4. Why are Sovereign Wealth Funds so eager to invest in banks?

5. Gillian Tett on why corporate default rates will matter in 2008. A look at the world of leveraged finance and funding for sub-investment grade companies.

6. "Agflation" and soaring agricultural commodity prices were big stories in 200…

Friday's look ahead

A note to Finance Trends readers. Be sure to join us tomorrow for our first "Features of the Week" post of 2008.

We'll take a look back at some of the key trends and investment themes of 2007, see how some of those trends are unfolding so far in the new year, and look ahead to the possibilities for 2008.

We covered many topics here at Finance Trends Matter during the past year; energy, oil prices, housing, subprime, gold and precious metals, commodities, the rise of global inflation, population growth and resource scarcity, performance of global stock markets, and more.

So stop by on Friday, when we'll review these topics and update them with some of the most interesting financial news of early 2008. See you then.