After hugging the flat line for almost the entire session, investors took to the sidelines in the final 1/2 hour of trading on Thursday in advance of Friday's pre-market November Non-farms Payroll report. Stocks had held up well through most of the session, even in light of a poor reading from ISM Services, which slipped back from expansion to decline in the course of one month, dropping from 50.6 in October to 48.7 in November.
That initially caused some slippage at 10:00 am when the report went public, but stocks quickly regained their footing and vacillated along the break even mark for most of the day afterwards. Prior to the opening, investors received good news on employment, as the Labor Dept. reported another decrease in initial unemployment claims, dropping to 457,000 for the most recent week.
Other news was mixed, though mostly negative. Productivity was revised downward for the third quarter from 9.5% (which was a bit unbelievable) to a more tepid 8.1%. Retail sales from a wide swath of national retailers was horrible, however, with many of the top mall stores reporting November sales down anywhere from 2-20% from a year ago. The combined figures showed a decline of 0.3% from last November, a horrible showing, considering last year's sales were down 7.7% from 2007. The only area showing any strength were discounters, though not all of them were posting positives.
These numbers reflect a growing concern that the entire recovery has been built on liquidity, the main beneficiaries of such largesse being the banks and Wall Street. As such, it's no surprise that while Main Street's interests wither and die, stock race higher and banks - like Bank of America - are able to find the means to pay back all $35 billion in TARP funds doled out by the feds last year.
Consumers are not spending as though times are good. Clearly they are not and this is being reflected in poor showings at the mall and department stores during the holidays. Even though Black Friday and Cyber Monday offered some hope, beyond those high promotion days, the US consumer seems already hunkered down for the holidays, intent on not splurging and running up more debt. The simple fact of life is that many consumers have no more credit with which to spend, either having reached their limits, already defaulted or had their lines reduced by the ever-popular banks and credit card companies.
Cracks are beginning to appear in the media's recovery story everywhere, though the most notable statement on the financial condition of the world can be found in the price of gold, which continues to reach new highs as a put against all fiat currencies.
Today's setback for equities should not be taken lightly. There are many indications that the US recovery is not as robust as many would like to believe, and, as goes the US, so goes much of the rest of the world. The hardest hit areas will be in developed nations such as Europe and Japan. The dislocations caused last week by the cries for help from Dubai may have been the canary in the coal mine, with more horrific debt stories still to come.
Time will tell, but today's market response in advance of November jobs data is not encouraging.
Dow 10,366.15, -86.53 (0.83%)
NASDAQ 2,173.14, -11.89 (0.54%)
S&P 500 1,099.92, -9.32 (0.84%)
NYSE Composite 7,157.05, -65.37 (0.91%)
Simple indicators, which reverse course in the final hour of trading, underlined the sell-off in graphic detail. Declining issues outpaced advancers, 4235-2215, a nearly 2-1 margin. New highs exceeded new lows, 448-90, though those figures are highly suspect due to the level of late-day selling. Most of the highs were reached early in the day and erased in the late portion of the session. Volume was not dramatic, holding at the usual levels. The one caveat is that the last time sellers beat down the averages in advance of a jobs number - on October 1 - the report came in as expected and the indices quickly recovered to their previous highs.
This time around, the market is looking for a loss of just 125-150,000 jobs during November, though whispers have circulated suggesting only 100,000 jobs lost for the month. Any number under 100,000 would surely repudiate today's late-day selling and spark a rally on renewed confidence, though it appears that the gloom and doom crowd has thus far had their way. Tomorrow's Non-farm Payroll Report and the official unemployment rate will be released at 8:30 am.
NYSE Volume 5,517,375,500
NASDAQ Volume 2,011,226,125
Oil once again finished lower, losing 14 cents, to $76.46. To the surprise of nobody, gold gained again, up $5.20, to $1,218.20. Silver did not respond in kind, losing 22 cents, to $19.11. Copper and platinum were likewise priced lower. Gold has truly set its own course.
Almost unnoticed was the US dollar trade, which was stronger against the Yen and Pound, but weaker against the Euro, resulting in a small gain on the Dollar Index. That also helped the bears beat down stocks by limiting the risk (or risk-free, as it should be identified) trade off a weaker dollar. should the dollar resume its decline, stocks would once again become the investment of choice, consequently trading higher.
Not all, but much will be revealed before tomorrow's opening bell.
Thursday, December 3, 2009
Wednesday, December 2, 2009
ADP Employment Number Trumped by Stronger Dollar
The market loves liquidity, lately, the kind that gushes forth from the font of a weaker US dollar. And since the market did not get what it wanted today, stocks pouted, putting on their most forlorn looks and stubbornly refusing to come out of their basement room.
After a relatively strong start, boosted by the private ADP Employment Report for November (-169.000 jobs), stocks took note of the dollar's strength against both the Yen and the Euro and headed South for the day. Coming one day after a major uptick, it probably wasn't such a bad move, and consequently a light one, though many were more hopeful for some follow-through on the back of Tuesday's semi-sweet rally. When all was said and done, of the major markets, only the Dow Jones Industrials finished in the red. Other indices posted marginal gains.
The Forex wouldn't allow stocks to advance much at all, however, as the perverse risk trade trumped all bets, good, bad or indifferent.
Dow 10,452.68, -18.90 (0.18%)
NASDAQ 2,185.03, +9.22 (0.42%)
S&P 500 1,109.24, +0.38 (0.03%)
NYSE Composite 7,222.42, +10.34 (0.14%)
Internals belied the headline numbers. Advancing issued finished the day well ahead of decliners, 4091-2396, and new highs beat new lows, 467-86. Volume was surprisingly strong for such a light news day, once again slightly better than usual. These indications bode well for the remainder of the week and month. It should be reiterated that stocks have patterned in the same manner over the past three months, with the best gains in the first 10-12 days of the month.
NYSE Volume 4,568,939,000
NASDAQ Volume 2,076,633,000
Strength in the US Dollar didn't stop gold from continuing its dramatic climb, posting another record close at $1,213.00, after gaining $12.80 on the day. Silver improved, though only by 12 cents, to $19.33. Crude oil lost $1.77, to $76.60, though that decline was keyed mostly to improvement in existing supply than anything else. In general, the energy and food complexes were all lower, with precious metals the only sector showing gains.
After the close came news - from CNBC's Charlie Gasparino - that Bank of America would exit the government's TARP program, with plans to raise capital to repay the entire $45 billion to get out from under the government's thumb. Some of the reasoning behind such a move would surely include the search for a new CEO to replace Ken Lewis, who has stated that he would step down from the position at the end of 2009. Government strictures on pay levels for executives whose firms have received TARP funds have limited BofA's search for a new CEO. Lifting the government pressure from the firm would pave the way for a new Chief Executive free to earn a competitive salary.
The surprising announcement also revives the conspiracy theory that the entire "financial armageddon" scenario of 2008 was smoke and mirrors orchestrated by the banks in the largest swindle ever perpetrated on the public. If Bank of America - like many of its colleagues - can suddenly find the means to repay an emergency loan all in one fell swoop, the veracity of the entire financial industry should be scrutinized with a more curious eye.
No matter the case, Bank of America's departure from the TARP is welcome news at a time the market needs a bit of a catalyst to move ahead. Whether this is really the kind of event which will propel stocks will have to wait until tomorrow.
After a relatively strong start, boosted by the private ADP Employment Report for November (-169.000 jobs), stocks took note of the dollar's strength against both the Yen and the Euro and headed South for the day. Coming one day after a major uptick, it probably wasn't such a bad move, and consequently a light one, though many were more hopeful for some follow-through on the back of Tuesday's semi-sweet rally. When all was said and done, of the major markets, only the Dow Jones Industrials finished in the red. Other indices posted marginal gains.
The Forex wouldn't allow stocks to advance much at all, however, as the perverse risk trade trumped all bets, good, bad or indifferent.
Dow 10,452.68, -18.90 (0.18%)
NASDAQ 2,185.03, +9.22 (0.42%)
S&P 500 1,109.24, +0.38 (0.03%)
NYSE Composite 7,222.42, +10.34 (0.14%)
Internals belied the headline numbers. Advancing issued finished the day well ahead of decliners, 4091-2396, and new highs beat new lows, 467-86. Volume was surprisingly strong for such a light news day, once again slightly better than usual. These indications bode well for the remainder of the week and month. It should be reiterated that stocks have patterned in the same manner over the past three months, with the best gains in the first 10-12 days of the month.
NYSE Volume 4,568,939,000
NASDAQ Volume 2,076,633,000
Strength in the US Dollar didn't stop gold from continuing its dramatic climb, posting another record close at $1,213.00, after gaining $12.80 on the day. Silver improved, though only by 12 cents, to $19.33. Crude oil lost $1.77, to $76.60, though that decline was keyed mostly to improvement in existing supply than anything else. In general, the energy and food complexes were all lower, with precious metals the only sector showing gains.
After the close came news - from CNBC's Charlie Gasparino - that Bank of America would exit the government's TARP program, with plans to raise capital to repay the entire $45 billion to get out from under the government's thumb. Some of the reasoning behind such a move would surely include the search for a new CEO to replace Ken Lewis, who has stated that he would step down from the position at the end of 2009. Government strictures on pay levels for executives whose firms have received TARP funds have limited BofA's search for a new CEO. Lifting the government pressure from the firm would pave the way for a new Chief Executive free to earn a competitive salary.
The surprising announcement also revives the conspiracy theory that the entire "financial armageddon" scenario of 2008 was smoke and mirrors orchestrated by the banks in the largest swindle ever perpetrated on the public. If Bank of America - like many of its colleagues - can suddenly find the means to repay an emergency loan all in one fell swoop, the veracity of the entire financial industry should be scrutinized with a more curious eye.
No matter the case, Bank of America's departure from the TARP is welcome news at a time the market needs a bit of a catalyst to move ahead. Whether this is really the kind of event which will propel stocks will have to wait until tomorrow.
Tuesday, December 1, 2009
New Highs for Gold, Silver Bucks Higher
Now that fears of another financial meltdown - a la Dubai - have subsided, world markets have bounced back nicely. Taking a look at the charts from the past three days of trading, we see the Dow, S&P and NASDAQ have all just about recovered from the swift down-kick from Friday. The Dow, in fact, made a new 52-week high today.
Most of the experts who have been covering the situation considered the Dubai dilemma to be nothing more than a hangover from last year's malaise. Certainly, the sultans and magnates in charge of one of the world's most robust commercial real estate build-outs had to know there were risks - overbuilding, high prices - but were blinded, like most of us, by the glorious profits which emanated from the global peace-time asset expansion.
While some of the projects in Dubai have been halted or scaled back, there are issues remaining to be worked out, such as rental prices, debt restructuring and all manner of price upheaval, but most of the companies and people who made investments there are well-heeled and not likely to bat much more than an upturned eyelash at the situation.
So, it's back to the risk trade, with the dollar down against the Euro mainly, and most other currencies, driving more and more money into stocks. As long as the dollar remains weakened - due to our high deficits, low interest rates and an implacable central bank (the Fed) intent on keeping things that way, stocks should have little impediment to move forward through the end of the year. What happens after that, in 2010 and beyond is another matter, though nobody seems particularly concerned about untidy matters such as inflation and the new bubble in government bonds, so long as there's money to be made in stocks, everybody's favorite game.
And while stocks have done exceedingly well, gold has outperformed everything in sight and continues to do so, today making its 25th all-time high in price. What people do not understand about the move in gold, as it usually responds to inflation - not deflation - as we are currently experiencing, is that it is a bet against all paper currencies. As long as they are floated and priced against each other, gold provides its investors with a surging supply of wealth in a hard asset. Unlike the fiat currencies, gold is tangible and its supply cannot be expanded easily. It costs more than $400 to extract one ounce of gold, so the miners, currently digging as furiously as they can, cannot produce enough supply to meet the growing demand.
The same is true, to a degree, for silver, though it is more abundant than its yellow cousin and used in more industrial situations. It has not eclipsed the highs of 2008, though today's move above $19/ounce puts it on track to shatter the $20 mark by year's end - maybe even the end of this week. Investors in the precious metals are enjoying the best price appreciation of all time.
With stocks up well from the March lows (nearly a 60% gain), all asset classes seem to be in good condition, though there's still some searching for value. Having some gold and/or silver mixed in with your paper assets has been a much better idea than just a hedge. The hard assets have actually returned quite handsomely.
Dow 10,471.58, +126.74 (1.23%)
NASDAQ 2,175.81, +31.21 (1.46%)
S&P 500 1,108.86, +13.23 (1.21%)
NYSE Composite 7,212.08, +119.72 (1.69%
On the day, the simple indicators were right in line with the headline numbers. Advancers trampled all over declining issues, 4916-1650. There were 406 new highs, to just 79 new lows. Volume was the best it's been in the past two weeks; all indications are for another leg up in the markets. Besides the A-D and high-low lines, volume and the unusual pattern of the markets - in which rallies have burst forth at the beginning of each of the last four months - are screaming to investors to buy now, despite recent highs. The pattern has been for stocks to pull back 3-5% after each of the subsequent runs, but this time the Dubai incident managed to sting only about 2%. Stocks are poised for another move higher, with the Dow heading to 10,750-10,850 or higher, by year's end.
Valuations may get a little on the pricey side, but that is a normal feature of raging bull markets, of which this undoubtedly is.
NYSE Volume 5,002,317,500
NASDAQ Volume 2,199,957,750
Commodities took the dollar down trade in stride. Oil popped another $1.75, to $78.75. Gold surged $17.90, to $1,200.20 and silver vaulted 68 cents, to $19.20. As well as gold has been going, silver should outdo it over the next few months if today's outsize gain is any indication.
Investors aren't waiting for retail figures or any other metrics at this point. They are snatching up investments in a chase of performance, led by the nay-sayers who haven't had enough faith in this market. The current condition is the perfect set-up for a true blow-off topping rally, especially once the S&P clears 1115. Stocks could gain another 5% before we close out 2009.
Most of the experts who have been covering the situation considered the Dubai dilemma to be nothing more than a hangover from last year's malaise. Certainly, the sultans and magnates in charge of one of the world's most robust commercial real estate build-outs had to know there were risks - overbuilding, high prices - but were blinded, like most of us, by the glorious profits which emanated from the global peace-time asset expansion.
While some of the projects in Dubai have been halted or scaled back, there are issues remaining to be worked out, such as rental prices, debt restructuring and all manner of price upheaval, but most of the companies and people who made investments there are well-heeled and not likely to bat much more than an upturned eyelash at the situation.
So, it's back to the risk trade, with the dollar down against the Euro mainly, and most other currencies, driving more and more money into stocks. As long as the dollar remains weakened - due to our high deficits, low interest rates and an implacable central bank (the Fed) intent on keeping things that way, stocks should have little impediment to move forward through the end of the year. What happens after that, in 2010 and beyond is another matter, though nobody seems particularly concerned about untidy matters such as inflation and the new bubble in government bonds, so long as there's money to be made in stocks, everybody's favorite game.
And while stocks have done exceedingly well, gold has outperformed everything in sight and continues to do so, today making its 25th all-time high in price. What people do not understand about the move in gold, as it usually responds to inflation - not deflation - as we are currently experiencing, is that it is a bet against all paper currencies. As long as they are floated and priced against each other, gold provides its investors with a surging supply of wealth in a hard asset. Unlike the fiat currencies, gold is tangible and its supply cannot be expanded easily. It costs more than $400 to extract one ounce of gold, so the miners, currently digging as furiously as they can, cannot produce enough supply to meet the growing demand.
The same is true, to a degree, for silver, though it is more abundant than its yellow cousin and used in more industrial situations. It has not eclipsed the highs of 2008, though today's move above $19/ounce puts it on track to shatter the $20 mark by year's end - maybe even the end of this week. Investors in the precious metals are enjoying the best price appreciation of all time.
With stocks up well from the March lows (nearly a 60% gain), all asset classes seem to be in good condition, though there's still some searching for value. Having some gold and/or silver mixed in with your paper assets has been a much better idea than just a hedge. The hard assets have actually returned quite handsomely.
Dow 10,471.58, +126.74 (1.23%)
NASDAQ 2,175.81, +31.21 (1.46%)
S&P 500 1,108.86, +13.23 (1.21%)
NYSE Composite 7,212.08, +119.72 (1.69%
On the day, the simple indicators were right in line with the headline numbers. Advancers trampled all over declining issues, 4916-1650. There were 406 new highs, to just 79 new lows. Volume was the best it's been in the past two weeks; all indications are for another leg up in the markets. Besides the A-D and high-low lines, volume and the unusual pattern of the markets - in which rallies have burst forth at the beginning of each of the last four months - are screaming to investors to buy now, despite recent highs. The pattern has been for stocks to pull back 3-5% after each of the subsequent runs, but this time the Dubai incident managed to sting only about 2%. Stocks are poised for another move higher, with the Dow heading to 10,750-10,850 or higher, by year's end.
Valuations may get a little on the pricey side, but that is a normal feature of raging bull markets, of which this undoubtedly is.
NYSE Volume 5,002,317,500
NASDAQ Volume 2,199,957,750
Commodities took the dollar down trade in stride. Oil popped another $1.75, to $78.75. Gold surged $17.90, to $1,200.20 and silver vaulted 68 cents, to $19.20. As well as gold has been going, silver should outdo it over the next few months if today's outsize gain is any indication.
Investors aren't waiting for retail figures or any other metrics at this point. They are snatching up investments in a chase of performance, led by the nay-sayers who haven't had enough faith in this market. The current condition is the perfect set-up for a true blow-off topping rally, especially once the S&P clears 1115. Stocks could gain another 5% before we close out 2009.
Monday, November 30, 2009
Cyber Monday Overshadowed by Dubai Issues
The continuing worldwide real estate debt saga was revived last week when developer Dubai World announced to anyone interested that it might like to rework the terms on some of its loans. In particular, the developer of some of the most expensive and outlandish buildings and communities in the world wanted a six-month moratorium on its outstanding debt.
That message roiled markets worldwide as bankers around the globe rolled their eyes. It was as though the entire financial community was to revisit the financial crisis of 2008 that nearly crumbled the entire global structure. That was last week.
On Monday, markets worldwide recovered, on consideration that the Dubai issue would be contained. In the US, stocks spent the majority of the session in the red, but leapt into positive territory after 3:00 pm on word that Dubai World would seek to restructure $26 billion of its debt.
Crisis averted? For now, that seems to be the case, though there are still billions of dollars worth of commercial and residential real estate worldwide that is similarly upside-down, with what's owed being more than current valuations, so, debt, blow-ups similar to what's occurring in Dubai may become more and more commonplace rather than an outlier event.
Such a backdrop makes investing of any kind somewhat more risky than normal. Imagine that all assets are under scrutiny, that the valuations of everything - right down to the currency in which the assets are denominated - are of skeptical nature. That's at the crux of not only the decline in residential real estate values, but also in the rise of gold, the decline of the US dollar and the upward swing in stocks.
Wherever investors feel less risk, or more opportunity for arbitrage, that is where money will flow. Whenever there's a crisis, such as over the past five days with the Dubai issues, money flows into the US dollar, seen by many as the absolute last safe haven. On mellower days, stocks are the choice, and the dollar is sold off. Through it all, however, two constants have remained: gold is moving steadily higher; residential (and now commercial) real estate is devaluing. There's more safety, supposedly, in bricks of ore than in houses.
Realistically, neither the gold bugs or real estate speculators have all the answers. Some areas of the world are in better shape than others, obviously, but so extreme is the fear that gold is seen as a better bet than houses. In other words, the market is telling us, shouting at us, to become more liquid. Cash, gold and stocks, which can be converted readily and without much fuss, are currently preferred to hard assets like buildings, homes, and land, which cannot be moved and are not easily liquidated.
What the ongoing Dubai issue says is that the world is facing a very uncertain future, one in which value may be placed more upon the liquidity of assets rather than some intrinsic value. After all, you can live in a house. You can't do that with bars of gold, cash money or stock certificates. Thus, all trading is risky, though, bottom line, cash remains king (until that is devalued, too).
Dow 10,344.84, +34.92 (0.34%)
NASDAQ 2,144.60, +6.16 (0.29%)
S&P 500 1,095.63, +4.14 (0.38%)
NYSE Composite 7,092.36, +22.27 (0.31%)
Simple indicators confirmed the small gains of the day. Advancing issues, which had been lagging all day, turned around and beat decliners, 3463-3031. There were 145 new highs to 96 new lows. Volume, like it or not, continues to moderate around 2 billion on the NASDAQ and 5 billion on the NYSE, in what has to be recognized as a kind of "new normal." Obviously, there are more than just a few investors - of all sizes and stripes - who have not re-entered the market after last fall's collapse. Those types can hardly be blamed. Surely some of them were completely wiped out. Many others simply prefer now to preserve cash rather than invest it. This could become all the rage as the baby boomer generation - badly burned in last year's financial conflagration - pulls back from riskier behavior as they approach retirement age.
NYSE Volume 4,935,098,500
NASDAQ Volume 1,926,715,500
Commodities snapped back as the dollar fell late in the day. The price of crude oil was also affected by news that a British yacht had been captured by Iranian sailors on November 25 and the crew are still being held. This brings into play not only international relations, but trust of the news media, as the world is just now hearing about an event 5 days old.
In any case, when the news broke late today, the price of crude catapulted higher, closing at $77.28, up $1.23. Gold advanced $7.50, to $1,183.00, with silver gaining 21 cents, to $18.54 at the close.
Anecdotal evidence from Black Friday seems to be confirming that shoppers spent slightly less than last year, though results have been mixed. Not surprisingly, nearly every report states that consumers are shopping for "value."
During times when the value of everything is in question, that ordinary people would be careful of their spending confirms the global, macro-economic outlook.
That message roiled markets worldwide as bankers around the globe rolled their eyes. It was as though the entire financial community was to revisit the financial crisis of 2008 that nearly crumbled the entire global structure. That was last week.
On Monday, markets worldwide recovered, on consideration that the Dubai issue would be contained. In the US, stocks spent the majority of the session in the red, but leapt into positive territory after 3:00 pm on word that Dubai World would seek to restructure $26 billion of its debt.
Crisis averted? For now, that seems to be the case, though there are still billions of dollars worth of commercial and residential real estate worldwide that is similarly upside-down, with what's owed being more than current valuations, so, debt, blow-ups similar to what's occurring in Dubai may become more and more commonplace rather than an outlier event.
Such a backdrop makes investing of any kind somewhat more risky than normal. Imagine that all assets are under scrutiny, that the valuations of everything - right down to the currency in which the assets are denominated - are of skeptical nature. That's at the crux of not only the decline in residential real estate values, but also in the rise of gold, the decline of the US dollar and the upward swing in stocks.
Wherever investors feel less risk, or more opportunity for arbitrage, that is where money will flow. Whenever there's a crisis, such as over the past five days with the Dubai issues, money flows into the US dollar, seen by many as the absolute last safe haven. On mellower days, stocks are the choice, and the dollar is sold off. Through it all, however, two constants have remained: gold is moving steadily higher; residential (and now commercial) real estate is devaluing. There's more safety, supposedly, in bricks of ore than in houses.
Realistically, neither the gold bugs or real estate speculators have all the answers. Some areas of the world are in better shape than others, obviously, but so extreme is the fear that gold is seen as a better bet than houses. In other words, the market is telling us, shouting at us, to become more liquid. Cash, gold and stocks, which can be converted readily and without much fuss, are currently preferred to hard assets like buildings, homes, and land, which cannot be moved and are not easily liquidated.
What the ongoing Dubai issue says is that the world is facing a very uncertain future, one in which value may be placed more upon the liquidity of assets rather than some intrinsic value. After all, you can live in a house. You can't do that with bars of gold, cash money or stock certificates. Thus, all trading is risky, though, bottom line, cash remains king (until that is devalued, too).
Dow 10,344.84, +34.92 (0.34%)
NASDAQ 2,144.60, +6.16 (0.29%)
S&P 500 1,095.63, +4.14 (0.38%)
NYSE Composite 7,092.36, +22.27 (0.31%)
Simple indicators confirmed the small gains of the day. Advancing issues, which had been lagging all day, turned around and beat decliners, 3463-3031. There were 145 new highs to 96 new lows. Volume, like it or not, continues to moderate around 2 billion on the NASDAQ and 5 billion on the NYSE, in what has to be recognized as a kind of "new normal." Obviously, there are more than just a few investors - of all sizes and stripes - who have not re-entered the market after last fall's collapse. Those types can hardly be blamed. Surely some of them were completely wiped out. Many others simply prefer now to preserve cash rather than invest it. This could become all the rage as the baby boomer generation - badly burned in last year's financial conflagration - pulls back from riskier behavior as they approach retirement age.
NYSE Volume 4,935,098,500
NASDAQ Volume 1,926,715,500
Commodities snapped back as the dollar fell late in the day. The price of crude oil was also affected by news that a British yacht had been captured by Iranian sailors on November 25 and the crew are still being held. This brings into play not only international relations, but trust of the news media, as the world is just now hearing about an event 5 days old.
In any case, when the news broke late today, the price of crude catapulted higher, closing at $77.28, up $1.23. Gold advanced $7.50, to $1,183.00, with silver gaining 21 cents, to $18.54 at the close.
Anecdotal evidence from Black Friday seems to be confirming that shoppers spent slightly less than last year, though results have been mixed. Not surprisingly, nearly every report states that consumers are shopping for "value."
During times when the value of everything is in question, that ordinary people would be careful of their spending confirms the global, macro-economic outlook.
Saturday, November 28, 2009
Short Session, Big Losses on Dubai Debt
Friday's abbreviated session answered the question of why stocks did not advance much in Wednesday's pre-holiday trading, when all of the economic news was positive. Overhanging the market was word from Dubai - on Wednesday - that the government was requesting a six-month moratorium on interest payments, mostly from its major real estate developer, Dubai World.
While the news did not noticeably affect markets in the US, the news shook Asian and European markets violently on Thursday. US stock exchanges were closed for Thanksgiving.
Quoting the NY Times:
At the open on Friday, stock futures were indicating a massive sell-off, with Dow futures down more than 200 points. After an initial selling spree which sent the Dow down more than 230 points, cooler heads prevailed for a time, bringing the indices back to some level of respectability and calm. By the close, however, fears of another round of banking crises had investors scurrying for the exits, not wanting to hold positions over a weekend in which many of these issues would be pondered.
Dow 10,309.92, -154.48 (1.48%)
NASDAQ 2,138.44, -37.61 (1.73%)
S&P 500 1,091.49, -19.14 (1.72%)
NYSE Composite 7,070.09, -162.03 (2.24%)
On the day, declining issues far outpaced advancers, 5211-1086. New highs held a slim edge over new lows, 98-85. Volume was only average, indicating a hope that markets would return to a more normal tone in days ahead. There was little panic to speak of, though every sector finished in the red.
NYSE Volume 2,846,343,000
NASDAQ Volume 972,038,750
Commodities took the bigger hit. Oil tumbled $3.06, to $74.90, its lowest close in months. Gold fell $12.60, to $1,176.00, though the price had fallen by as much as $30 during the day. Silver slipped 47 cents, holding at $18.34.
What Dubai means to US banking interests is a relatively small matter, as only Bank of America (BAC) and Citigroup (C) hold anything approaching what would be considered large obligations. The general fear - a holdover from last year's major meltdown - is a more severe liquidity issue, cascading across the financial landscape in unpaid loans and the roll-over of resultant guarantees (Credit Default Swaps) which would put more banks at risk.
While it is possible that another severe shock could ensue, it's more likely that central banks will intervene in the interest of the banks, propping them up with more guarantees and looser credit facilities, much like last year's rescue. Still, there are palpable fears out there, that the entire system is prone to disruptions like this as more emerging markets face similar issues.
Paper money rolling off printing presses at high speed can only delay the inevitable. Eventually, losses must be taken or parties made whole. The most probable outcome is continuation of the deflationary spiral, which the central bankers of the world wish to avoid.
The simplest way to understand the issue is in terms of mortgages. As more money is pumped into the system, chasing the bad, assets - everything from stocks to houses - become less valuable. The home purchased for $200,000 a year ago is only worth $160,000, an so on. Devaluing currencies to reflect lower asset values, a hard, painful choice, seems the proper medicine, but one which world banking and political leaders have yet refused to consider.
While the news did not noticeably affect markets in the US, the news shook Asian and European markets violently on Thursday. US stock exchanges were closed for Thanksgiving.
Quoting the NY Times:
According to data from the Bank for International Settlements, foreign banks have $130 billion of exposure to the United Arab Emirates, with Britain having the largest exposure, $51 billion. Banks in the United States have debts of $13 billion.
At the open on Friday, stock futures were indicating a massive sell-off, with Dow futures down more than 200 points. After an initial selling spree which sent the Dow down more than 230 points, cooler heads prevailed for a time, bringing the indices back to some level of respectability and calm. By the close, however, fears of another round of banking crises had investors scurrying for the exits, not wanting to hold positions over a weekend in which many of these issues would be pondered.
Dow 10,309.92, -154.48 (1.48%)
NASDAQ 2,138.44, -37.61 (1.73%)
S&P 500 1,091.49, -19.14 (1.72%)
NYSE Composite 7,070.09, -162.03 (2.24%)
On the day, declining issues far outpaced advancers, 5211-1086. New highs held a slim edge over new lows, 98-85. Volume was only average, indicating a hope that markets would return to a more normal tone in days ahead. There was little panic to speak of, though every sector finished in the red.
NYSE Volume 2,846,343,000
NASDAQ Volume 972,038,750
Commodities took the bigger hit. Oil tumbled $3.06, to $74.90, its lowest close in months. Gold fell $12.60, to $1,176.00, though the price had fallen by as much as $30 during the day. Silver slipped 47 cents, holding at $18.34.
What Dubai means to US banking interests is a relatively small matter, as only Bank of America (BAC) and Citigroup (C) hold anything approaching what would be considered large obligations. The general fear - a holdover from last year's major meltdown - is a more severe liquidity issue, cascading across the financial landscape in unpaid loans and the roll-over of resultant guarantees (Credit Default Swaps) which would put more banks at risk.
While it is possible that another severe shock could ensue, it's more likely that central banks will intervene in the interest of the banks, propping them up with more guarantees and looser credit facilities, much like last year's rescue. Still, there are palpable fears out there, that the entire system is prone to disruptions like this as more emerging markets face similar issues.
Paper money rolling off printing presses at high speed can only delay the inevitable. Eventually, losses must be taken or parties made whole. The most probable outcome is continuation of the deflationary spiral, which the central bankers of the world wish to avoid.
The simplest way to understand the issue is in terms of mortgages. As more money is pumped into the system, chasing the bad, assets - everything from stocks to houses - become less valuable. The home purchased for $200,000 a year ago is only worth $160,000, an so on. Devaluing currencies to reflect lower asset values, a hard, painful choice, seems the proper medicine, but one which world banking and political leaders have yet refused to consider.
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