That Was The Week That Was-4th Week June

 

‘Mid-Year and the Markets are More Jittery, Less Optimistic’ This according to Veronica Dagher in Sunday’s WSJ. In May the Dow was ‘ripping’ through record territory. Now the markets are trying to come to terms to having the Federal Reserve’s punch bowl taken off the table. It is trying to determine the impact of higher interest rates. Higher rates make consumers more cautious. Even though Central Bankers soothed investor fears they still remain on the edge. Here’s the chart that accompanied Ms. Dagher’s article in the Personal Finance section of the Journal.

 

ANOTHER SUMMER OF VOLATILITY?

 

 

cLaRiTy is what the markets want. The Ben Bernanke wasn’t clear enough when he said the Fed would begin to consider cutting back the QE3 buying program. Market traders have long memories and remember when the Fed Chief said the Fed would start cutting back when employment hit 6.5%. Last month no language was given that suggested a reduction in the Fed’s policy. Unemployment numbers were 7.7%. Then the most recent unemployment numbers of 7.6% were announced and ‘voila!’ a complete change of direction and language. Traders need specific instructions and react badly to anything that they think is a change or a shift in policy.

Earning Season ala Sheraz Mian. More pain in the weeks ahead, he writes. While most analysts expect the markets to stabilize around S&P 500 1550 level Mian writes that they will go lower as earnings season kicks in and company’s  reevaluate their forecasts. He expects the markets to fall deeper- low 1400’s or more.

 Tuesday Markets Bounced. Bill Gross of PIMCO said that the Fed tapering plan may be too hasty. Gold fell another $12 and may see $1000 before the summer is over. Stocks in Hong Kong & Australia rallied on comments from China’s Central Bank that it was working to ease the cash squeeze. The government had taken a tight money policy to eliminate the shadow banking that was going on in the country. Interest swaps fell in China indicating that the easing was on its way. Somewhere over the weekend I read that the Chinese government could and would inject huge amounts of capital at a moments notice to avoid a financial catastrophe. Copper is getting crushed but not for the reasons that one would think. According to the WSJ a primary reason is the weak dollar. Just like oil copper is quoted in $$s. Back in April Zacks chastised Copper Bulls and said there was a better place to invest in the metal’s market.

Author, Investor, Self-Help Guru, James Altucher, said that every time the Federal Reserve has tightened up the markets have rallied. He goes on to give an example of 1999 and the markets went up almost 100% in about 2 years. Of course James neglects to mention that this was the exact same time that ‘irrational exuberance’ was on the lips of a former Fed chief and the dot com bubble was a-brewing. Everything is the same except when it’s different. 

 

 5% Growth for the U.S. economy, predicts Prudential’s Keon, who sees underlying strength in the private sector. Silver fell as did Gold last Wednesday. After hours on Wednesday there was some movement higher but both metals far under significant support. Central Bankers rushing to make nice-nice with equity markets. Speaking of nice-Nice market move on Wednesday as more bad news hit the Street on lower GDP. Continuing QE3 was seen as a positive going forward. Next stop is earning season as Alcoa starts the week July 8th. Big Apple and Big Google- Combined both hold $200 billion cash and equivalents. For Apple cash comes out to over $200 a share. Closing price for Apple was in the neighborhood of $400.00 and so for the rest of the company investors paid $200.00 Samsung gets a lot of business from Apple!

Speaking of Apple they filed patent papers to use the name iWatch in Japan. The whispers also said that Apple just inked a deal with China Mobile, the largest telecomm company in China. Not a big deal until it happens and Apple is known for patenting iSlate and other product names.

Markets Moving Higher? Probably so. What’s another clue? Index annuity providers are adjusting their caps. This means that if the market moves up 10% the annuity (if monies are in similar stock index) will move up 33% of the 10%. Index annuities are a fixed income product and have nothing to do with monies invested in the stock market. They cannot match an index because they are not invested in the index. Still its called an index annuity.

Morningstar- an independent rater of funds and stocks has just published their end of quarter economic outlook. I won’t go into details but the future looks bright! Morningstar’s Robert Johnson, CFA reports:

• U.S. oil production is a sight to behold. Oil, housing, manufacturing, improved balance sheets and labor flexibility will drive the U.S. economy.
• A weaker China, a tougher Fed and a tightening of the the U.S. fiscal policy will keep a lid on short-term economic activity but don’t be fooled; The long-term fundamentals are strong.
• Johnson continues by detailing each piece of the economy from labor to banking and sees positives along with great strengths going forward.
• If you’ve been ignoring what’s been happening right before your eyes you’ve been listening to the wrong people. This is the beginning of a marvelous economic recovery. Certainly not without its bumps and stumbles but looking good.

Thursday Markets Scored Another Triple Digit Gain! Gold continued its slide. Markets are pricing in higher interest rates and the bond story is almost assured of printing ‘The End’. Goldman Sachs CEO Lloyd Blankenfein said The Market overreacted to the Fed statement. He continued by stating the obvious and that while there were bright spots in the economy the problem is poor sentiment among Americans. This attitude has left many American businesses and institutions adverse to risk for fear of failure. ‘Confidence,’ he concluded, ‘really matters.’ Problem is, Lloyd, most Americans have been so messed over by your peers they’re like a cat with a long tail in a room filled with rocking chairs. They just don’t trust you, your peers or the government.

Markets $Ended the Quarter Up With No Thanks to an Ugly June. June was down. The year is up. 

Whispers that gold could go to $700. Blackberry shares fell Friday 29% as the smart phone manufacturer shipped less units than expected by investors. News that volatility to the markets will return for the summer.

 

Have a fun filled, safe 4th of July.

QUESTIONS CALL PAUL @ 586  295 0430 OR WRITE HIM @ pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

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