John Authers of the Financial Times uses Passover as a pretext for discussing four perplexing questions related to the markets. They’ve been bugging me too, so I appreciate him having a go at them. From the Financial Times: Passover starts tonight. The world’s Jews gather to commemorate the Hebrews’ flight from Egypt and eat a […]
Read more...Gee, wonder why it took so long for someone to connect the dots. Scarce credit, high commodity prices, and a economy that’s weakening despite the Fed pulling out all stops do not bode well for corporate earnings. Yet consensus earnings forecasts predicted a rise in profit for the S&P 500 in 2007 and and an […]
Read more...Storied investor George Soros believes that the credit crisis is far from over, and sees regulatory failure as a major cause. From Bloomberg: Billionaire George Soros said the global credit crisis will get worse before it gets better. Soros, who said lack of oversight is partly responsible for problems in the financial markets, criticized regulators […]
Read more...Two loosely related and thoughtful posts today point up some of the ways that the fundamental frameworks of how participants think about and relate to financial markets are breaking down. Note that this development is separate from the fact that financial institutions look pretty wobbly. Instead, these two writers, Roger Ehrenberg and Cassandra, highlight two […]
Read more...This message came from an investor who has provided me with some very useful research from time to time: Mike Belkin, who writes a weekly technically-based look at lots of markets—the only technical service to which I subscribe—notes today that last week equity fund flows netted to a $22.9 billion inflow, broken down as $3.3 […]
Read more...An unexpected rise in junk bond yields has led to a sharp fall in prices, and experts think the worst is yet to come. Note that the junk bond market is operating from a more pessimistic outlook than the equity market. This divergence is not uncommon. From Bloomberg: High-yield, high-risk bonds are off to their […]
Read more...The markets are making wildly different interpretations of the news and economic prospects. Record low T-bill prices and a sudden fall in commodities suggests that a serious slowdown and deleveraging pose major risks, yet equities had a strong showing, with the Dow up over 260 points. What gives? We’ve had repeated head-fake rallies in this […]
Read more...Investors are so nervous that they are willing to take almost nothing in nominal terms, which is tantamount to a meaningful negative real return, to sit in the safety of three-month T-bills, which are now a mere 0.56%. One explanation is the large number of fails in the repo market, which as Alea reports, is […]
Read more...Citigroup has declared a very bad scenario first forecast by analysts Stefan-Michael Staimann and Susanne Knips of Dresdner Kleinwort in February 2007, “The Great Unwind,” to be in progress. To their credit, they made this bold call months before the credit contraction began. They viewed it as an inevitable outcome of the hedge fund boom: […]
Read more...Two related stories from Bloomberg. First, on the bearish calls by Joseph Granville and Robert Stovall. Note that each has made some spectacularly correct and equally wrong calls: Granville, born in 1923, remembers his banker father’s bad moods following the stock-market crash of 1929. The younger Granville began his career at defunct brokerage E.F. Hutton […]
Read more...Commodity prices are falling sharply after many indexes hit new records yesterday. The cause was the belated realization that growth will be falling, easing demand for raw materials. Most observers believe the long-term outlook for commodity prices is strong, but the market looked badly overbought of late. From Bloomberg: Commodities plunged the most in almost […]
Read more...The movement in Treasury Inflation Protected Securities is a sign of investor desperation to find any shelter from inflation. And TIPS are only a partial inflation hedge. Their yield adjustment keys off the consumer price index, which due to modification to the index (to contain CPI adjusted Federal benefits) lags broader measures of inflation. From […]
Read more...Floyd Norris in the New York Times has an interesting article that laments the fact that, unlike past financial crises, no one has stepped forward to encourage the sort of risk-taking needed to restore order to the markets. Even though I enjoyed the piece, ultimately, the effort to look for a single agent to rally […]
Read more...Individuals and institutions are capable of considerable self-deception when faced with difficult choices. The Fed’s latest signals about what it intends to do about inflation are a classic example. Both Bloomberg and the Financial Times tell us that the central bank stands ready to raise rates quickly to ward off inflation. From Bloomberg: Federal Reserve […]
Read more...Two pieces today in the Financial Times address the striking disparity in sentiment and prevailing valuations between the credit and equity markets. Debt market investors are (for the most part) acting as if the floor might collapse beneath them, while equity investors are talking as if the downturn is coming to an end. And interestingly, […]
Read more...