Using that logic, since July 1st, the S&P 500 has moved nearly 3,000 points, and almost 5,000 points since January 1st, yet for the year it is almost completely flat, just up 0.1%.
Wednesday, December 7, 2011
Wed 12.7.11
For my quick hitter today, I provide a chart from Ron Griess of the ChartStore, which illustrates how many points the S&P 500 has moved this year. As an example, if the S&P 500 moves up 15 points on Monday and down 10 points the next day, then it has moved 25 points, but on a net basis has only moved 5 points.
Using that logic, since July 1st, the S&P 500 has moved nearly 3,000 points, and almost 5,000 points since January 1st, yet for the year it is almost completely flat, just up 0.1%.
Using that logic, since July 1st, the S&P 500 has moved nearly 3,000 points, and almost 5,000 points since January 1st, yet for the year it is almost completely flat, just up 0.1%.
Tuesday, December 6, 2011
Tues 12.6.11
For today's comment I bring in Wall Street's bullish 2012 estimates and briefly discuss everyone's favorite topic...Europe
If you remember, a month or so ago, when they announced the 50% haircut on European debt, I noted that there would be some unintended consequences if they did not consider this haircut a "credit event", which would have triggered credit default swaps. Well, the ISDA ruled this was not a "credit event" because it was "voluntary" (sort of like someone holding a gun to your head, then asking you to voluntarily give them your wallet). Now the unintended consequences are beginning to materialize as investors are asking for a much higher return from European countries, as they can't "hedge" their position with credit default swaps. This is across the board, at both the stronger countries (Germany, Belgium) and the weaker countries (Spain, Italy).
Also, I want to point out that with yesterday's announcement from S&P that they were putting Eurozone countries on credit watch, this could mean big problems for Euro banks which are far larger (assets as a % of GDP) then American banks. Cutting the countries sovereign ratings will increase bank funding costs, at a time when people are already nervous of the safety and soundness of these banks in Europe. Once again, starting to play out like it did in 2008 in US...
Here's a quick snapshot of Wall Street's S&P 500 2012 target. Once again, the analysts are bullish, and all of them believe if Europe can have a moderate downturn that we could see some real price improvement next year. Couple of things to note.....1st point, there isn't that much disparity in the operating EPS from the analysts, but the biggest factor in the 2012 target is the forward P/E multiple they place on the earnings. For instance, BASML has a lower operating EPS than GS, but their price target is 100 points higher. My 2nd point is that although this isn't reflected in the chart, this is each analysts base forecast, but when you look at their bearish estimates, S&P target moves down to 900 - 950 for almost all of the ones that provided this detail. So, once again, as long as the US can keep chugging along, Europe can get its act together and China doesn't have a "hard landing", we could see 3 straight years of price appreciation (assuming we end this year in the black).
If you remember, a month or so ago, when they announced the 50% haircut on European debt, I noted that there would be some unintended consequences if they did not consider this haircut a "credit event", which would have triggered credit default swaps. Well, the ISDA ruled this was not a "credit event" because it was "voluntary" (sort of like someone holding a gun to your head, then asking you to voluntarily give them your wallet). Now the unintended consequences are beginning to materialize as investors are asking for a much higher return from European countries, as they can't "hedge" their position with credit default swaps. This is across the board, at both the stronger countries (Germany, Belgium) and the weaker countries (Spain, Italy).
Also, I want to point out that with yesterday's announcement from S&P that they were putting Eurozone countries on credit watch, this could mean big problems for Euro banks which are far larger (assets as a % of GDP) then American banks. Cutting the countries sovereign ratings will increase bank funding costs, at a time when people are already nervous of the safety and soundness of these banks in Europe. Once again, starting to play out like it did in 2008 in US...
Here's a quick snapshot of Wall Street's S&P 500 2012 target. Once again, the analysts are bullish, and all of them believe if Europe can have a moderate downturn that we could see some real price improvement next year. Couple of things to note.....1st point, there isn't that much disparity in the operating EPS from the analysts, but the biggest factor in the 2012 target is the forward P/E multiple they place on the earnings. For instance, BASML has a lower operating EPS than GS, but their price target is 100 points higher. My 2nd point is that although this isn't reflected in the chart, this is each analysts base forecast, but when you look at their bearish estimates, S&P target moves down to 900 - 950 for almost all of the ones that provided this detail. So, once again, as long as the US can keep chugging along, Europe can get its act together and China doesn't have a "hard landing", we could see 3 straight years of price appreciation (assuming we end this year in the black).
Mon 12.5.11
Looks like it's risk-on today as European investors cheer the news that Merkel and Sarkozy are meeting to discuss a plan for stability in the EU (didn't we just go through this same thing 2-3 weeks ago??) EU leaders are considering a plan that would bring stricter budgets to each of the countries in the EU (read: austerity measures), leveraging of the EFSF (European Financial Stability Facility) to a maximum of 1 trillion Euro of first loss guarantees on sovereign debt and an IMF (International Monetary Fund) bailout of b/w $100 - 200B Euro. While I believe it's good that they are starting to actually look at measures to stop the contagion, I have a couple of reservations, in particular with the IMF bailout. For one, the US comprises 20% of the IMF's budget, and I think politically, it would be very difficult to go along with a bailout of Europe when we still have persistently high unemployment (albeit somewhat improving) and although we have some economic growth, it doesn't necessarily "feel" like we are in a growing economy.
Day 4 of my rally into the year-end thesis: We currently have a backdrop of improving retail sales (3-4%), modestly improving employment picture, and an uptick in consumer sentiment. Institutional investors are still weary and are on average 60-70% in equities, so they are desperate to move the needle higher before December 31st, a typically strong month for stocks. Offsetting these positives that are earnings at a cyclical peak, negative income numbers, weak volume on rallies, a dysfunctional government, and an ongoing global deleveraging, but I think these bearish points will take a back seat until next year....
Day 4 of my rally into the year-end thesis: We currently have a backdrop of improving retail sales (3-4%), modestly improving employment picture, and an uptick in consumer sentiment. Institutional investors are still weary and are on average 60-70% in equities, so they are desperate to move the needle higher before December 31st, a typically strong month for stocks. Offsetting these positives that are earnings at a cyclical peak, negative income numbers, weak volume on rallies, a dysfunctional government, and an ongoing global deleveraging, but I think these bearish points will take a back seat until next year....
Friday 12.2.11
The jobless rate declined to 8.6 percent, the lowest since March 2009, from 9 percent. Non-farm payrolls climbed 120,000, with more than half the hiring coming from retailers and temporary help agencies. Also, they revised October from 80,000 to100,000 in new jobs created.
With today's good jobs #, we are going to hear a lot of political posturing from both sides, but mostly the President, so my comment today focuses on market performance of Presidents in their 3rd Year of the 1st Term. The first chart below from Global Macro Monitor illustrates that since WW II, every President has had the S&P 500 rise in their 3rd Year of their 1st term. This throws more fuel into my thesis that the market is going to rally into the year-end, and Obama will end up having the S&P 500 in the black by the end of this year.
Another proof point that investors have pointed to concerning a December rally, is that the S&P 500 appears to be tracking the 1971 analog, also the third year of a first term President. Ironically, 1971 was also a year of similar currency turmoil as President Nixon officially ended the gold standard and the Breton Woods international monetary system in the middle of August. During a massive run on gold, then Treasury Secretary John Connally and Under Secretary for Monetary Affairs Paul Volcker advised the President to let the dollar float, effectively making it a fiat currency. This caused panic in the global markets until other countries let their currencies go.
History is rhyming here with our own Euro crisis and sovereign debt crisis. Let’s hope we get a similar spike up as we did in 1971 and 1991 and Santa brings us a nice rally to end the year.
Thurs 12.1.11
Kevin's note today reiterates what I have been saying about yesterday's intervention from the central bankers....that it only fixed the liquidity problem, and not the solvency problem for the European sovereigns.
On a more positive note, since it's December 1st, I thought I would share a chart from ThomsonReuters which illustrates that since 1971, on average December has been the best month for equities, at least according to the MSCI World Index, which includes both developed and emerging markets. It really gets to the psyche of investing, in that investors love to rally into the year-end, in hopes of beginning the new year on a high note.
On a more positive note, since it's December 1st, I thought I would share a chart from ThomsonReuters which illustrates that since 1971, on average December has been the best month for equities, at least according to the MSCI World Index, which includes both developed and emerging markets. It really gets to the psyche of investing, in that investors love to rally into the year-end, in hopes of beginning the new year on a high note.
| |
Wed 11.30.11
The equity market is on tear today (currently up over 3%) and traders have all turned bullish. In yesterday's blurb, I noted that if European central bankers would announce some measures to stop the contagion, and we had a decent jobs #, then watch out for a solid rally to end the year.....well, today all the global central banks (Federal Reserve, Bank of England, European Central Bank, etc.) agreed to lower the pricing on liquidity swaps (eg temporary dollar loans to banks) by a half % point. What this has done is to add liquidity into the banking system in Europe by increasing the access to US dollars. What started in Europe as a solvency problem, has begun to make its way into a liquidity problem (similar to what happened during the 'credit crunch' in US in 2008). What this measure does is to add liquidity (e.g. credit) into the banking system in Europe. Then we had an outstanding ADP jobs report which blew away expectations, so now "risk is on" and the market is moving higher.
The one thing to note is that this move by the central bankers doesn't in any way solve the fact that their countries are over leveraged (eg too much debt), but it does give them more time to resolve this issue. Then, China came out and reduced its reserve requirements by 0.5%, which is a measure to loosen monetary policy (e.g. drive GDP growth).
I look for a continued rally in equities going into the year-end, with your cyclicals outperforming (eg Caterpillar, Deere, FedEx, any mining stock, e.g. 'Rio Tinto' etc.). Investors will put the European sovereign debt issue on the back-burner for now, but it will come back, I just look for it to be back on investors minds after earnings in Feb 2012. Until then, hopefully we can enjoy this rally.
The one thing to note is that this move by the central bankers doesn't in any way solve the fact that their countries are over leveraged (eg too much debt), but it does give them more time to resolve this issue. Then, China came out and reduced its reserve requirements by 0.5%, which is a measure to loosen monetary policy (e.g. drive GDP growth).
I look for a continued rally in equities going into the year-end, with your cyclicals outperforming (eg Caterpillar, Deere, FedEx, any mining stock, e.g. 'Rio Tinto' etc.). Investors will put the European sovereign debt issue on the back-burner for now, but it will come back, I just look for it to be back on investors minds after earnings in Feb 2012. Until then, hopefully we can enjoy this rally.
Tues 11.29.11
One item I thought was interesting from Oppenheimer, especially after last week's blood bath.....From 1990 - 2010, the fourth quarter has produced gains on average near 5%....that nets a return higher than the cumulative return of the first, second and third quarters.....Santa Claus rally in the cards??? I think if Europe can even resemble like it won't blow up, and they announce some measures to stop the contagion, and we get a decent jobs number on Friday, look for a nice rally to end the year.....
Thurs 11.10.11
No comment today, so just my take.....First off, the market is looking green today as Italian bond yields have dropped below 7%, and investors look to take advantage of yesterday's huge sell-off. However, investors are starting to circle France, as the spread b/w French 10-year bonds and German bunds is rising to a high of 170 basis points. The higher the market prices France's bonds, the more worried investors become, thereby increasing the bond yields, eventually making higher future borrowing costs a "self-fulfilling prophecy". However, France has more levers than other European countries, including eliminating tax loopholes for businesses, and cutting spending, although this would not be viewed favorably by its citizens. But, enjoy today's rising stock market, and tomorrow Veteran's Day.
Wed 11.9.11
Kevin didn't put out a Comment today, so all you will get is my quick bantering. Today's short theme is Italy. The problem with what has happened with Italy is that to quote Ezra Klein -- it's too big to fail, and too big to save. If Italy goes, then there's no reason to save Greece. Here's Ezra Klein's quote from today's Washington Post
The problem, put simply, is that Italy is both too big to fail and too big to save. It’s the eighth-largest economy in the world. At $2 trillion, it’s about seven times as large as Greece’s $300 billion economy. France and Germany’s banks alone have $600 billion in exposure to Italian debt. But Barclay’s says Italy is “now mathematically beyond the point of no return.” Silvio Berlusconi might be out, but changing governments does not change arithmetic. And so the question is simple, and stark: If there wasn’t the will to really save Greece, where would the will -- and the money -- come from to save Italy?
Here's the Barclays Bullet Points that Ezra Referenced: 1) At this point, it seems Italy is now mathematically beyond point of no return
2) While reforms are necessary, in and of itself not be enough to prevent crisis
3) Reason? Simple math--growth and austerity not enough to offset cost of debt
4) On our ests, yields above 5.5% is inflection point where game is over (note from aw: yields are above 7% and approaching 8%)
5) The danger:high rates reinforce stability concerns, leading to higher rates
6) and deeper conviction of a self sustaining credit event and eventual default
7) We think decisions at eurozone summit is step forward but EFSF not adequate
8) Time has run out--policy reforms not sufficient to break neg mkt dynamics
9) Investors do not have the patience to wait for austerity, growth to work
The problem, put simply, is that Italy is both too big to fail and too big to save. It’s the eighth-largest economy in the world. At $2 trillion, it’s about seven times as large as Greece’s $300 billion economy. France and Germany’s banks alone have $600 billion in exposure to Italian debt. But Barclay’s says Italy is “now mathematically beyond the point of no return.” Silvio Berlusconi might be out, but changing governments does not change arithmetic. And so the question is simple, and stark: If there wasn’t the will to really save Greece, where would the will -- and the money -- come from to save Italy?
Here's the Barclays Bullet Points that Ezra Referenced: 1) At this point, it seems Italy is now mathematically beyond point of no return
2) While reforms are necessary, in and of itself not be enough to prevent crisis
3) Reason? Simple math--growth and austerity not enough to offset cost of debt
4) On our ests, yields above 5.5% is inflection point where game is over (note from aw: yields are above 7% and approaching 8%)
5) The danger:high rates reinforce stability concerns, leading to higher rates
6) and deeper conviction of a self sustaining credit event and eventual default
7) We think decisions at eurozone summit is step forward but EFSF not adequate
8) Time has run out--policy reforms not sufficient to break neg mkt dynamics
9) Investors do not have the patience to wait for austerity, growth to work
Tues 11.8.11
Just a short note from Kevin today. As everyone starts to really question if we could have contagion in the Euro, and some investors are pointing out that China could come to their rescue, since so much of China's GDP is from exports to Europe.
Although China is on track to become the largest economic power in the next 30-50 years, The one thing that I want to point out this morning is that they are still a very poor country, as noted by their GDP per capita. Their total GDP is higher, but when you consider how low their GDP per capita is compared to other countries, it really drives the point that China is not really at a point where they can bail out the Euro.
Although China is on track to become the largest economic power in the next 30-50 years, The one thing that I want to point out this morning is that they are still a very poor country, as noted by their GDP per capita. Their total GDP is higher, but when you consider how low their GDP per capita is compared to other countries, it really drives the point that China is not really at a point where they can bail out the Euro.
Mon 11.7.11
Sorry, the comment is a little late. Kevin once again focuses on the one economic statistic that everyone should focus on....in the US 2/3 or 66% of our economic activity is based on consumer spending. This is unlike any other country in the world. This slide illustrates that the US's GDP is based on consumer spending considerably more than on exports. Look at the next to last on the bottom left hand slide, you see Hong Kong / China which rely almost entirely on exports for their GDP. This is why China doesn't want to reset the yuan, yet, b/c although they are growing at a rapid pace, they still are a younger economic country that relies on a cheap currency to export goods. If the US would focus on strengthening the dollar, we would see a tangible decline in commodity prices, including food and oil/gas (even with China's appetite for these items). If the price of commodities decline, then consumers will have more $ in their pockets and presumably will go out and spend it on other items.....resulting in higher economic growth and ultimately jobs
Source: Wolfe Trahan
Source: Wolfe Trahan
Subscribe to:
Posts (Atom)