Posts Tagged ‘risk trade’

Risk Trade Is On; Markets Up 150 Points; Gold

Friday, September 24th, 2010

U.S. stocks opened strongly higher Friday, with the Dow industrials up more than 100 points, with Wall Street finding reason for cheer in a report on U.S. manufacturing in August. The Dow Jones Industrial Average DJIA rose 142.66 points to 10,805.08. The S&P 15.99 points to 1,140.82.

A report showing the largest decline in durable-goods orders in a year was cheered by economists and markets on Friday as attention focused on improved reading for capital goods. Orders for U.S.-made durable goods fell 1.3% in August, the Commerce Department reported Friday, dragged down by orders for transportation equipment decreased. Excluding transportation, new orders rose 2%. Analysts had expected a decline of 1.4% for durable-goods orders. Orders for nondefense capital goods excluding aircraft rose 4.1% in August, compared with a decline of 5.3% in the prior month. Analysts consider these core capital goods orders to be the best gauge of capital spending by businesses. Shipments of core capital goods rose 1.6% in August, compared with a gain of 0.1% in the prior month. This should bode well for” third-quarter gross domestic product.

Shipments in August fell 1.5%, compared with a gain of 2.5% in the prior month. Inventories of durable goods rose 0.4% in August, following a gain of 0.6% in July. The monthly durables report is volatile, with swings in demand for civilian aircraft and other expensive items. Durable-goods orders in July rose an upwardly revised 0.7%, compared with an earlier estimate of 0.4%

David Tepper comments pushed markets higher. Tepper of the hedge fund Appaloosa Management said on CNBC Friday that he’s getting back into stocks, and added he’s not interested in financials at the moment. Tepper’s bet on financial stocks at the bottom of the financial crisis helped to boost Appaloosa’s 2010 returns to 132.7 percent, net of fees. Performance documents from an investor show the fund was up nearly 42 percent through July. You could visibly see futures begin to move when Tepper said he was into stocks.

Other factors helping the market this morning: the sagging dollar, and its boost to multinational companies, the downsizing of the GM deal, and Petrobras’ plans to raise $70 billion in what would be the biggest initial public offering in the world. The funds would allow Petrobas to tap offshore oil reserves.

August new home sales are due at 10 a.m. and are expected to rise by 291,000 purchases from 276,000 in July, when sales plummeted to the lowest level on record.

Gold futures climbed above $1,300 an ounce on Friday, extending their record-breaking run, as the metal’s safe-haven appeal continued to draw investors. The most recent actions of several central banks have added fuel to fears regarding a depreciation race among global currencies. These fears should boost the gold price in the long run.

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Risk Trade Back On; Markets Up 230 Points

Wednesday, September 1st, 2010

Stocks surged on the first trading day of September after a report showed U.S. manufacturing showed surprising strength, and after signs emerged of a strengthening global economy. The DJIA rose more than 230 points. All 30 Dow components were higher this morning.

The Institute for Supply Management’s monthly manufacturing index for August came in at 56.3, much better than the expected drop to 52.5 for August. The July reading was 55.5. Construction spending, meanwhile, slumped 1.0 percent in July to $805.2 billion, the lowest level in 10 years, the Commerce Department reported. Figures for June were revised to an 0.8 percent fall, instead of the 0.1 percent gain previously reported.

Earlier Wednesday, the Mortgage Bankers Association reported applications for home purchassing and refinancing rose last week amid the lowest interest rates since 1990. A report from ADP and Macroeconomic Advisors showed the private sector lost 10,000 jobs from July to August largely due to a drop of 40,000 jobs in the goods-producing sector. The news was offset somewhat by a separate report from Challenger, Gray & Christmas showing that planned layoffs hit a 10-year low in the month.

Last month saw the worst August performance for Wall Street since 2001 and the first losing August since 2005, after a see-saw day of trading that ended with the Dow eking out a 5 point gain. September is typically one of the worst months of the year for the major stock market indexes, although that was not the case in September 2009.

European and Asian shares were higher after a rebound in Chinese manufacturing boosted investor sentiment. China’s manufacturing economy staged a moderate rebound in August after slowing for several months, according to the data.

What a great way to show optism after gloom and doom the past three months!!

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Bernanke Saves The Day; Market Up 160

Saturday, August 28th, 2010

What might Bernanke’s speech have said or implied that triggered the market response we’ve witnessed today? “Don’t fight the Fed” The economy is anemic, and the outlook might be uncertain-to-poor, but the Fed will pump, buy, and do whatever it takes to turn it around. The Fed will keep short rates at ZERO for an extended time, and force companies and investors to take risk.

If anything expressed above proves reasonable and accurate, the risk trade is where investors have to be making any return at all! Cash will continue to be trash and treated as such indefinitely. It is as if Bernanke held up a big sign that says: “Buy stocks, buy gold, buy commodities, buy houses, and, perhaps as a corollary, SELL BONDS — and take the money and put it into riskier markets…

With the foregoing in mind, let’s have another look at my updated comparison chart of Bonds and Gold, two markets that could provide the most insightful reaction to the GDP data and to Bernanke’s speech, are gold and 10-year bonds. Purely from a price perspective, the bond market is showing signs of exhaustion since its mid-Aug peak, while gold prices appear poised to continue higher towards a retest of the June highs at $1263/65. If my perceptions about the technical set up reflect “reality,” then my sense is that Bernanke is “desperate” to create inflation, which argues for higher gold and lower bond prices ahead.

The speech by Fed Chairman Bernanke was all over the map and was noncommittal in terms of offering an iron clad forecast despite the title being The Economic Outlook and Monetary Policy.

The sermon was littered with caveats in the form of “should”, “despite”, “although”, “possibly”, and “however” – but in the end, he expressed optimism (then again, what else can he do in public?). He obviously learned his lesson from using words such as “unusually uncertain”, which he used to describe the economic outlook at his recent Congressional testimony in July when the Dow responded by diving 109 points (as if things haven’t become even more uncertain since, but why tell anyone?).

Here are some of the snippets from the speech – Mr. Bernanke seems to have a different crystal ball than we do, as he is optimistic that growth will be sustained in the second half of this year and improve next year. At the same time, he acknowledges that the economy has not improved as much as the Fed was forecasting earlier (that is old news). But what really stood out in his speech was the extent to which it was so “on the one hand, but then on the other hand”, which of course is why economists are constantly ridiculed.

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