Jan

23

Wednesday Market Digest

Teresa Lo @ 4:10 PM | | Start a Discussion 

23-testspx2.gifSeems like the “I Told You So” crowd is out in full force: stocks must be close to some kind of tradeable bottom.

Jeremy Grantham is growling over at Bloomberg. WSJ reports, “Stocks Show Classic Bear Signals“, and quoted Paul Desmond and Hans Utsch amongst others. Dave Tice is dancing in the streets.

Elsewhere, commodities markets once overrun by hot money are seeing “profit taking”. Yep, it’s just another day for performance-chasing market participants who always seem to be cursed with buying high and selling low.

While the market managed to hold on an intraday test of bottom, the unanswered question is still out there: will the monoline insurers bomb the market shortly? The chain of dominos will stop at the feet of the rating agencies; what’s next for them? Reform?

23-wsj.gif

We already know how much market cap has been vaporized, so let’s take a look at how the smart money is riding out the storm. The follow charts show performance net of the S&P 500 index since December 26, 2007, when the present downswing began on the daily chart. This first chart shows rotation amongst stocks representing the main asset classes.

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The second chart shows sector rotation within the S&P 500.

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Food for Thought

  • The World Melts for Gold
    [Editor: More ways for the public to hold the bag.] From China to the Middle East, new ways to invest in gold are rapidly popping up in developing countries. It’s transforming the market for one of mankind’s most venerable ways to sock away wealth. The door is opening to a new class of investors who previously wouldn’t have had access to gold futures and other tools. Their rush to invest has helped fuel soaring prices — gold crossed $900 an ounce for a time in the past week, and there are some calls for $1,000 — while adding volatile new dynamics to the market.
  • Surprise ETF outflows halt gold in its tracks
    The outflows were substantial with 22.7 tonnes leaving streetTRACKS, the largest gold ETF this week. On Thursday, streetTRACKS saw a record one-day outflow of 21 tonnes, equivalent to a month of gold production in China, now the world’s largest producer. At a time of increased risk aversion and equity market weakness, this unexpected reversal in sentiment towards gold has proved unsettling. “Should this scale of redemptions continue, it may put into question the widely held view that ETF investors differ from other gold buyers in that many have a strong ‘buy-and-hold’ mentality,” said James Steel of HSBC. ETF investors have played a key role in driving gold to record levels, but the flip- side has been a sharp drop in demand from the jewellery market. GFMS, the precious metals consultancy, warned this week that jewellery buying could fall by 20 per cent in the first half of 2008 due to high and volatile prices.
  • Chavez to farmers: Sell within Venezuela or it’s ‘treason’
    With the country recently facing milk shortages, Chavez said “it’s treason” if farmers deny milk to Venezuelans while selling it across the border in Colombia or for gourmet cheeses. “In that case the farm must be expropriated,” Chavez said, adding that the government could also take over milk plants and properties of beef producers. “I’m putting you on alert,” Chavez said. “If there’s a producer that refuses to sell the product … and sells it at a higher price abroad … ministers, find me the proof so it can be expropriated.” Addressing his Cabinet, he said: “If the army must be brought in, you bring in the army.”
  • Corn Drops Most in 3 Months, Oil Falls on Slowdown
    Corn plunged the most in three months, oil tumbled to six-week lows and copper dropped in Shanghai as investors sold commodities to cover share losses and on concern a global slowdown may slow raw-material demand.
  • Global markets plunge on U.S. recession fears
    “It’s another horrible day,” said Francis Lun, a general manager at Fulbright Securities in Hong Kong. “Today it’s because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won’t help the economy recover.”
  • US ETF assets pass $600bn
    A report by State Street Global Advisors, published last week, said the amount invested in US exchange traded funds rose last year from $420bn in 2006, and that 270 new funds were launched. The rise in ETF assets was a result of the performance of the funds and net new inflows. However, international ETFs represented the category with by far the most growth, with new assets of $59bn taking total assets from $106bn to $165bn, a growth of about 56%. The growth in international ETFs accounted for about 31% of the total increase in ETFs last year.
  • U.S. Funds Endure Redemptions
    Fear was rampant among investors in the first days of this year. Based on the retail funds we track daily, we estimate that U.S. equity funds lost $12.1 billion on the first seven trading days of 2008. Meanwhile, U.S. equity ETFs redeemed $10.2 billion on those seven days. The outflow of $22.3 billion from U.S. equity funds and ETFs on the first seven trading days of the year more than reversed the $21.2 billion inflow in all of 2007.
  • Bank of China May Report Subprime-Related Write-Down
    The possible subprime losses also raise questions about transparency at China’s banks, which list shares for international investors in Hong Kong and domestically in Shanghai — and which are among the biggest banks in the world by some measures. Analysts say they can only make educated guesses at how much money Bank of China’s U.S. subprime investments lost last year because China’s rules don’t require it to disclose the total until April when it announces full results for 2007. The same is true for other big Chinese lenders, including Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., although their total holdings of U.S. mortgage securities are much smaller. “We don’t have a good read” on the current value of mortgage holdings at Bank of China and other Chinese lenders, says Charlene Chu, a senior director at Fitch Ratings China. The lenders “have not been transparent” about the ratings on the mortgage securities they own.
  • Gates Says Microsoft Strategy Won’t Change on U.S. Slump
    Bill Gates, chairman of Microsoft Corp., talks with Bloomberg’s Mark Barton about the potential impact of a U.S. slowdown on growth, the company’s investment in education and sales in Europe. In July, Gates will stop his day-to-day work at the company he co-founded in 1975. He will remain as chairman. They speak in Berlin after the Government Leaders Forum.
  • Kantor of Barclays Says Fed ‘Not Panicking’ With Rate Cut
    Larry Kantor, co-head of research at Barclays Capital Inc., talks with Bloomberg’s Matt Miller and Betty Liu about the Federal Reserve’s decision to lower interest rates in an emergency move, the impact on stocks and the outlook for the economy. The central bank cut the target overnight lending rate to 3.5 percent from 4.25 percent, the Federal Open Market Committee said in a statement in Washington.
  • Starbucks Tests $1 Cup, Free Refills in Seattle
    The $1 test undercuts even low-cost coffee purveyors, including McDonald’s Corp. and Dunkin’ Donuts, a unit of Dunkin’ Brands Inc., whose coffees generally start in the low $1-plus range. Although most sit-down restaurants top off customers’ coffee free of charge, specialty cafes have largely stayed away from the practice. Starbucks will face increasing competition this year from McDonald’s, which plans to start adding a line of espresso drinks at its U.S. restaurants.

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