As the first full week of September ends and the summer draws to a close, many investors are still looking for answers to questions first asked back in May, notably:
- What's behind the recent market volatility?
- Can we put BP behind us?
- And what effect will President Obama's political agenda have on investments?
One reader writing into the Money Morning mailbag touched on all three of those topics. Wrote Ron, from Toronto:
Could it be that George Soros has finally dumped all of his equity holdings and that alone has cause a rebound in the futures and stock prices because there is simply less selling?
BP may be the next shoe to drop if that blowout preventer proves to be functional.
The "Bama" is also back in campaign mode. The teleprompter must be back on steroids now…(just wait until it tells him that the oceans have stopped rising due to his charisma.)
In Toronto eh?
Making Waves in the Market
First, we'll take a look at the volatility that has plagued the market all summer long. The Dow Jones Industrial Average suffered a 4% decline in the month of June, rose more than 9% in July, and then tumbled 4.65% in August. The Standard & Poor's 500 Index and Nasdaq Composite followed similar trajectories in that three-month span, and true to form, all three bellwether indexes started strong in September.
The Dow already is up 4% this month with the S&P 500 having surged 5.23% and the Nasdaq up 5.78%
Money Morning Contributing Writer Jon D. Markman in his column Tuesday attributed this month's market rise not to George Soros's stock dump but rather to investors worrying less about a double-dip recession than before.
"The markets staged a relief rally last week that reflects Wall Street's attitude about the overall economy," Markman said. "Simply put, investors are saying they can live with slow growth, so long as the U.S. can avoid a double-dip recession."
While George Soros did indeed reduce his exposure to U.S. equities by 42%, from $8.8 billion in March to $5.1 billion at the end of June, analysts said better-than-expected American and Chinese manufacturing data helped raise consumer confidence last week, and the markets followed.
Soros has pulled funds out of Brazil's oil giant Petroleo Brasileiro SA (NYSE ADR: PBR) and drastically slashed his holdings in Wal-Mart Stores Inc. (NYSE: WMT), JPMorgan Chase & Co. (NYSE: JPM) and Pfizer Inc. (NYSE: PFE). Experts have concluded Soros shifted some money into government bonds and commodities.
However, the overriding factor in the determining the direction of stocks continues to be general investor sentiment.
BP's Blame Game
In the continuing saga of BP PLC (NYSE ADR: BP), the company still has some time until experts determine the blowout preventer's reliability, as it was just dragged from the ocean floor last Friday and is in government custody.
In the meantime, BP on Wednesday released its four-month internal investigation into the Macondo well blowout, pointing the finger at other contractors for contributing to the rig explosion. BP claimed that there was no one reason for the failure, but instead a "complex and interlinked series" of problems that caused the worst oil spill in U.S. history.
The report partially blames cementing contractor Halliburton Co. (NYSE: HAL) for a poorly designed cement seal that allowed explosive natural gas to enter the well. It also heavily blames Deepwater Horizon owner Transocean Ltd. (NYSE: RIG) for misreading pressure tests and failing to notice and address the flow of hydrocarbons into the well for more than 40 minutes before the explosion.
Out of the eight most important findings of fault in BP's report, BP only takes blame for one of them.
The company may have hit on one point that could help relieve it of some blame. As oil and gas escaped from the well they flowed up the center of the pipe, instead of along the outside of the well casing, meaning equipment and design decisions made by BP might have had less impact on the explosion than originally assumed.
And if the blowout preventer is found to be faulty, BP might not be the only company held liable. Cameron International Corp. (NYSE: CAM) made the device, which Transocean later purchased.
While the report sheds some light on the explosion, it has an obvious public relations agenda attached. Its release is aimed at reducing the chance the U.S. Justice Department will bring criminal negligence charges against the company, which would give a painful boost to its already pricey spill costs. BP also hopes to prevent Congress from banning the company from future Gulf of Mexico drilling.
Effective Policies or Political Rhetoric?
U.S. President Barack Obama did in fact enter "campaign mode" this week when he unveiled a multi-billion dollar job creation and transportation improvement plan, among other hiring incentives, to address the stubbornly high unemployment rate.
President Obama gave a speech in Cleveland Wednesday proposing three plans to encourage job growth: a $50 billion infrastructure spending outline, permanent continuation of a research tax credit, and 100% tax write offs for businesses' investment costs through 2011.
And the Republicans responded with their usual answer: No.
Political analysts and economists say this move is far less about job creation and more about politics.
"The president has changed the conversation from whether to renew or terminate President Bush's tax cuts to his own tax-cut agenda, and is promoting a couple of business-friendly proposals that Republicans have previously promoted," David Wessel wrote in The Wall Street Journal. "So Republicans either oppose them, and look hypocritical, or back him: a win-win for Democrats."
President Obama's rhetoric has been reminiscent of his 2008 campaign style.
"If we're willing again to choose hope over fear, to choose the future over the past, to come together once more around the great project of national renewal, then we will restore our economy, rebuild our middle class and reclaim the American dream for the next generation," he said to an audience at Cuyahoga Community College in Ohio.
While politicians worry about gaining votes, frustrated voters want to see economic plans that will lower the 9.6% unemployment rate and offer financial help to those out of work. November's midterm elections need to be followed by swift change in Washington.
"As the recovery slows, we desperately need decisive action for our leaders on both fiscal and monetary policy," Richard Trumka, president of the AFL-CIO told CNNMoney.com on Tuesday. "It's time for leaders to show that they're economic patriots."
(**) Money Morning editors reserve the right to edit responses for grammar, length and clarity when posting on our Web site. Please include your name and hometown with your email.
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