Archive for March, 2010
The Financials Have Been Leading the Market
Posted by Jody Eisenman | Filed under Uncategorized
Although the market was mixed on Friday, the Dow Jones Industrial Average and the S and P 500 are both up about 8 per cent in the last five weeks. However, the real action has been in the financials. The financial ETF (XLF) has gone from 13.51 to 15.54. Here a list of some of the more prominent financial stocks:
Stock Symbol 2010 low Mar 14 close
Goldman Sachs GS 148.72 174.96
Morgan Stanley MS 26.16 29.91
Citicorp C 3.11 3.97
C actually traded as high as 4.20 on Friday before selling off in the afternoon.
One of the major reasons for this run up is that the major banks have been able to almost mint money under the scenario of very low interest rates. Simply put, they are able to borrow funds are almost zero (check the interest you’re getting on your checking and savings accounts) and lend it at a huge spread. Mortgages are running at 5-6%, and credit debt are running as high as 20%. Many of these banks have fully repaid their TARP money from the government.
In the broader market, I see at least two hurdles the market must overcome to trade higher. First, is the Fed meeting on Tuesday. Second, is that on a technical basis, is bouncing up against a potential double top in the 1150-1200 area. The comments from the Fed on Tuesday could go a long away to indicating whether we will break through or pull back.
A Strong Week for the Stock Market
Posted by Jody Eisenman | Filed under Uncategorized
Led by several bellwether stocks such as Goldman Sachs and Apple Computer, the equity markets completed a solid week. The S and P 500 has now risen for six straight days, and wound up over three per cent for the week. We are now at the highest levels since January 19, and we are just below the October 2008 levels.
What has fueled this rally has been a steady unemployment rate of 9.7%. This number was expected to rise seasonally due to the weather, so the unchanged figure was viewed as another sign that the economy is recovering. In addition, the situation in Greece seems to be improving from the brink of disaster, as they were able to raise $6.8 billion in a bond offering last week. They also had $4.8 billion in budget cuts. Of course, the Greek unions opposed this move, and strikes reigned throughout the country.
The market looks incredibly strong here. It is rising in the face of a high unemployment rate and a very low consumer confidence figure. As I have stated previously, it is almost as if the financial crisis of 2008 and early 2009 never happened. Can this continue? Even supposed experts are divided on this. http://finance.yahoo.com/news/Diviners-Divided-Economists-apf-2346209182.html?x=0&.v=1
As always, things should be interesting in the coming weeks.
Rev. Ike and Sovereign Debt
Posted by Jody Eisenman | Filed under Uncategorized
The late Reverend Ike was a minister with a church in New York City. With a radio show that reached an audience of millions, he preached not that money was the root of evil, but rather, it was the lack of it. Meanwhile, good old Ike lived in luxurious homes and drove exotic cars. There is a story about him that goes like this:
One day after Sunday services, a man came to him and told him that he had a big problem. Rev. Ike shrugged it off, telling him that the Lord would solve it for him. However, the man persisted, so Ike asked him to explain the nature of his discomfort. The man explained that he had a big loan coming die the following morning, and he had no means to pay any of the interest, let alone the principal. Rev. Ike didn’t miss a beat. He said, “My son, you don’t have a problem. The BANK has the problem!”
Similarly, if Greece were to default, the real losers will be the debt holders. The biggest holders are banks in France, Switzerland and Germany. What seems to be happening now is the classic death spiral that occurred many times in 2008. As the debt situation worsened, the cost of insuring this debt via Credit Default Swaps (CDS) skyrockets. This in turn leads to a further drop in Greek bond prices as investors dump them, which then leads to even higher CDS prices. And the circle continues, until either a bailout happens, or the country defaults. These is some fear that in the case of default, this could spread to other European countries. Most of the European Union has extremely high debt to GDP ratios, which means the same thing could happen to them. For that matter, so does the United States. While I don’t think the US is anywhere near default, the major losers would be countries that hold lots of treasuries, like Japan and China. Could this be the reason that China was started to cut back on treasury holdings? A further declinein holdings, along with a rise in interest rates, could really hurt the US debt situation.
Meanwhile, the financial markets seem to shrug this off. The stock market seems to be churning in a rather tight range. For the month of February, the Dow and the S and P closed slightly above their January numbers, and we are roughly even for the year. The resolution of the Greek situation, one way or another, could have a big effect on the markets in March.
