On a closing basis, the S&P 500 hasn’t dropped the necessary 20% to be considered an official bear market, but for all intents and purposes U.S. stocks are in a bear market. If you measure the index on an intra-day basis, the peak to trough decline was 21.58% at today’s low. And if not for a curiously timed and still unsubstantiated rumor from the Financial Times about a European bank recapitalization plan, the S&P 500 was set to close down more than 20% from its April high. Instead, the index ripped more than 4% higher in the last 40 minutes of trading. This is the FT’s second … [Read more...]
Have Stocks Bottomed?
After busting through its previous support level of 1,200, the S&P 500 dropped to an intraday low of 1,100 in early August. As we pointed out in our last technical analysis update, longer-term charts show that stocks have significant support in the 1,100-1,150 range. That support level has been confirmed by the price action over the last six weeks. The S&P 500 has tested, let’s call it, 1,125 on four occasions over recent weeks. Each time, the market hit 1,125 it bounced higher. But the rallies have failed each time the index approached 1,225. Stocks have carved out a 100 point range … [Read more...]
How to Profit when Stocks Plummet
Over the last two months, stock-market fluctuations have been extreme. In August, 400-point swings became a common daily occurrence for the Dow Jones Industrial Average. September has also seen its share of volatile days. Since the end of July, one common measure of volatility, standard deviation, has increased by over 130%. For many investors, extreme bouts of volatility can fray the nerves. Stock-market gyrations cause anxiety and stress and lead to emotionally charged investment decisions. But falling markets aren’t uniformly negative—they do create opportunities. Here are two ways to … [Read more...]
Twisted Monetary Policy
At the Fed’s policy meeting yesterday, Mr. Bernanke announced that what America desperately needs is a rearranging of the deck chairs. Facing opposition from, well, just about everybody who isn’t a trained Keynesian economist (read: those with common sense), the Fed decided to lengthen the maturity of its Treasury portfolio. Bernanke & Co. will sell $400 billion in short-maturity Treasury securities and purchase Treasuries with maturities of 6–30 years. Investors have dubbed the move “Operation Twist” because the Fed is twisting the slope of the yield curve. This latest attempt to … [Read more...]
Copper Signals Trouble
Copper is said to have a PhD in economics for its ability to forecast the economy. Copper is used in everything from construction to autos to electronics. What do copper prices signal about the economy today? Global economic momentum is slowing. Copper prices are rolling over. The red metal has broken through a two and half year uptrend with further losses signaled. Stay tuned. … [Read more...]
Goldman Calls it Quits
Goldman Sachs is closing up shop at its flagship Global Alpha hedge fund. Global Alpha is one of the best-known quantitative hedge funds in the world. In its heyday the fund managed $12 billion. But after a series of bad bets, assets tumbled over 90% to $1 billion. The fund’s downfall started in 2007 when computer-driven trading strategies went haywire. Global Alpha lost about 23% that August and reportedly finished the year down 40%. The fund regained some of its losses in 2008 and 2009 with gains of 4% and 30%, but it never fully recovered. Global Alpha was flat last year and it is down … [Read more...]
Is Your Money Fund Safe?
You really have to be careful what you read these days. There is loads of misguided advice pumped out of the financial press. I recently came across an article in one of the leading personal finance magazines that offered especially appalling advice. The article was about money funds and whether or not they are safe given the euro area’s sovereign debt and banking crisis. What does the euro area have to do with U.S. money funds? According to Fitch Ratings, prime U.S. money funds have almost 50% of their assets invested in European financial institutions. Not such a comforting thought when you … [Read more...]
A $65-Billion Bet
I was listening to Bloomberg radio the other day and Carly Fiorina was on as a guest. Carly is the former CEO of Hewlett Packard. She led a controversial acquisition of Compaq that turned HP into the world’s largest PC maker. Carly was on to talk about Hewlett Packard’s recently announced decision to exit the PC business and move deeper into software with a $10-billion acquisition of Autonomy Corp. HP’s decision came as a surprise to investors—an unpleasant surprise. The stock plummeted 20% on the news. As I listened to the Bloomberg interview I was struck by how often Ms. Fiorina used the … [Read more...]
Divorced From Reality
A divorced from reality Chicago Fed bank President Charles Evans helped spur a rally in gold today with calls for aggressive monetary stimulus. Evans is in favor of QE3 and would have voted for it at the Fed’s last policy meeting. Like Fed Chairman Ben Bernanke, Mr. Evans believes that QE2 was successful. Successful at what—temporarily propping up stock prices and raising food and fuel prices? Unemployment hasn’t come down meaningfully and the economy is weaker now than it was when the Fed announced QE2 last year. Mr. Evans policy prescriptions are wrongheaded, but sadly I fear his views are … [Read more...]
Consumers Forecasting Recession
Consumers are now forecasting a recession. The Thomson Reuters / University of Michigan final index of consumer sentiment was released today. The index fell to levels not seen since the height of the financial crisis. The expectations component of the survey plummeted to a three decade low. In the almost 60 year history of the Michigan consumer sentiment survey, every time the index dropped below 60 as it did in August, the economy was in recession. … [Read more...]
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