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Posted
Oct 21 2009, 12:07 PM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
While stocks continue to flirt with new rally highs, trouble brews beneath the surface.
A slew of short-term technical indicators are falling out of overbought territory including various stochastic and momentum measures. Breadth continues to narrow, with the percentage of NYSE stocks over their 10-day moving average dropping from 81% to 64% on Tuesday even as the NYSE Composite Index (NYA.X) closed just 1.1% away from the rally price high set on Monday.
Translation: Fewer and fewer stocks are holding up the major indices like a foundation made of sand that is slowing melting away. In fact, the situation looks somewhat similar to what happened between May and June before equities slumped into the July low.
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Posted
Oct 20 2009, 12:15 PM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
Brazil's finance ministry announced late Monday that the country will impose a 2% tax on foreign inflows into the country's stock and bond markets as policymakers try to stem the rise of their currency, the real, which is up 23% this year. Brazilian Finance Minister Guido Mantega said after announcing the measure that "Our aim is to stop speculation, which is undermining the real and threatening local companies." He added: "Long-term foreign investment remains welcome."
The tax starts today. The move comes as a surprise. On Friday, Brazilian President Lula da Silva said that the government was not considering such a tax. In his words there was "no plan to create any tax" and he added that when "false reports are published, the entire country loses." The tax is designed to placate exporters whose competitiveness is threatened by a strengthening currency. A similar debate is being waged in Japan and elsewhere in Asia.
Part of the reason for the nervousness is the ongoing debasement of the U.S. dollar
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Posted
Oct 16 2009, 06:28 PM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
The Dow Industrials tumbled back under the psychologically important 10,000 threshold on Friday after some surprisingly bad news from the banks jarred the bulls out of their complacency.
Bank of America (BAC) reported a third-quarter loss of $2.2 billion or 26 cents per share, falling below the consensus estimate of a 12 cent loss as its consumer credit portfolio continues to deteriorate. Similar problems plagued Citigroup (C) when it reported a 27 cent per share loss on Thursday. The results would've been even worse if not for some accounting trickery surrounding the amount of money set aside for future loan losses.
Remember that it was news the banks had returned to profitability back in March that got the equity rally going in the first place. Now, after a 53% rise in the Dow and a 146% increase in bank stocks as represented by the Financial SPDR (XLF), one wonders: Will the beleaguered financial system deal yet more damage to the real economy as loan growth is tightened and fresh losses recognized? It's too early to say, but the banks are already balking at plans to increase capital requirements. Moreover, there is evidence that the consumer loan delinquencies that have dampened Q3 results are about to get worse.
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Posted
Oct 13 2009, 12:05 PM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
While the primary trend for stocks continues to arch skyward, we are beginning to see equity traders react to some new developments over in the world of fixed-income, commodities, and currencies. This has made for choppy trading over the last few days.
Much of the catalyst for the recent gains in equities has been the depreciation of the U.S. dollar. Traders are using the greenback as a funding currency in carry trades with riskier, higher yielding assets because of super-low U.S. interest rates. They borrow dollars cheaply, sell them short, and use the proceeds to buy commodities and bonds in countries like Brazil and Australia.
They can do this with confidence because of the apparent support for dollar devaluation among officials in Washington -- who are hoping to boost employment by reviving the competitiveness of our exports -- along with prolonged support for low rates at the Federal Reserve.
With so much leverage at work
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Posted
Oct 13 2009, 11:17 AM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
Don't look now, but a nation of shoppers is about to be reborn. Thanks to rising stock prices, stabilizing home values, increased savings, improved confidence in the economy, and reduced debt, there is building evidence that the quintessentially American capacity for consumption is returning. The key has been a recovery in net worth and more manageable debt burdens.
According to Deutsche Bank economists, from a low in the first quarter, households are already halfway down the road to rebuilding net worth to the 20-year average of 533% of income. Also, thanks to ultra-low interest rates, debt service ratios are quickly returning to more normal levels even as total debt levels remain elevated. This helps spending since people focus on monthly payments, not the total balance outstanding.
It's worth noting that the stock market is already pricing in a more optimistic outlook in this area.
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Posted
Oct 08 2009, 10:43 AM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
After removing the inflationary effects of the Fed's dollar printing, stocks are now sitting at the lows reached after the swoon in early September. By looking at the relative performance of the S&P 500 to gold futures, investors are nearing something of a decision point.
One of two things can happen from here. Gold, which blasted to a new high of $1,044 on Wednesday, could continue to outpace stocks. Or we could see gold cool off and stocks start posting some real, inflation-adjusted gains.
My guess is the September lows for the stock-to-gold ratio will serve as critical support for another move higher. Why? Well the two big movements in the gold-adjusted S&P 500 occurred between
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Posted
Oct 05 2009, 12:04 PM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
Stocks should soon start enjoying the benefits of a renewed surge in liquidity courtesy of the Federal Reserve.
Although the Fed pulled the punch bowl away in one area, by announcing the discontinuation of its direct debt purchases back on September 23, it has quietly been gunning the money supply. Clearly something has Ben Bernanke & Co. worried. Maybe it was Friday's terrible jobs report.
As you can see in the chart below, the effective Federal Funds rate -- which is the short-term inter-bank lending rate that the Fed targets -- has plummeted over the past few weeks.
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Posted
Oct 02 2009, 06:24 PM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
Since the Federal Reserve announced on September 23 that it would not be extending its direct purchases of mortgages and U.S. Treasuries, stocks have lost more than 4%. At the time, I wondered if the Fed had killed the bull market.
While that remains to be seen, in the near term at least, stocks look ripe for a rebound after sliding lower on a spate of sour economic news. On Tuesday, we got word that consumer confidence had slipped. On Wednesday, the Chicago PMI came in under expectations. Thursday saw very weak domestic auto sales. And of course, we had a horrible jobs report.
By all measures, with investors shaky after Thursday's plummet, the bears should have smashed the major indices on Friday. The fact that they didn't press their advantage, along with some other corroborating evidence, indicates we have a classic oversold scenario on our hands. This should help support stocks until Alcoa (AA) kicks off the third-quarter earnings season next Wednesday. Here's why.
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Posted
Oct 02 2009, 01:29 PM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
Friday saw the release of the latest employment situation report and boy was it a doozy. Payrolls fell by another 263,000 in September, well under the consensus estimate of a loss of 170,000. The unemployment rate inched higher to 9.8% -- which now stands at the highest level since 1983.
Given the steady increase in consumer confidence and Wall Street expectations over the summer, these numbers are about as comforting as a splash of ice cold water on a winter morning. Digging into the details only makes it worse: The household survey component reported a whopping 782,000 jobs were lost last month compared to a 392,000 drop in August.
Are there any redeeming qualities? This may come as a surprise, but I think there are a few reasons to be hopeful.
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Posted
Sep 30 2009, 09:54 PM
by
Anthony Mirhaydari
Rating:
Money Blog: Top Stocks Blog - MSN Money
As investors are distracted by the volatility in the stock market, boring ol' Treasury bonds have been going wild. Since August 10, the iShares 20+ Year Treasury Bond ETF (TLT) has gained 9.4% versus a 4.6% return for the S&P 500.
This is all quite curious since normally at this stage of an economic recovery, defensive assets like Treasury bonds should be lagging as investors price in corporate profit growth and an increasingly inflationary environment. Indeed, the urge to avoid government debt should be especially strong given the massive increase in the global money supply as central bankers around the world fought to keep financial Armageddon at bay. Add to this large and growing fiscal deficits and the associated increase in the supply of government debt.
Yet, money continues to flow into the government's coffers as investors line up to throw a few billion at Uncle Sam. Here's why.
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