Stocks rose gently like heat waves off a radiator over the past week, as traders guessed, assessed and processed the results of the midterm elections and the Federal Reserve's decision to try to light a fire under the U.S. economy by buying a $75-billion pile of fresh, new Treasury bonds every 30 days for the next eight months.
The major indexes rose 3.5% amid a set of sessions when banks finally found footing, as they were the best performing group, up 1%. Laggards were industrials and utilities, ending flat. Breadth was positive, favoring advancers by 2-1. And the number of new highs swelled to 1,200 while new lows also rose, to 80.
Jon Markman
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Stock Market Faces Critical Test This Week
Click here to read why the market is at a critical juncture...
Keeping Tabs on Thailand: An Asian Tiger Lurking Low in the Reeds
Last week we talked about Singapore and Thailand - two Asian economies that are quietly taking off. Today I want to add to those thoughts with a few more key points that opportunistic U.S. investors should know about Thailand, in particular.
Over the weekend, the Thai currency, the baht, rose to its highest level since 1997 due to an improved outlook for economic growth and expectations of more investor inflows. A current-account surplus of $5.42 billion this year through July and the fact that the Bank of Thailand has raised its benchmark interest rate twice this year have also helped the baht post the second-best performance among Asia's most-traded currencies excluding the yen.
"There has been quite a lot of demand to buy the baht from offshore, probably from foreigners to buy Thai stocks and bonds," Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp., told Bloomberg News. "Money is flowing into Asia on the region's strong economic outlook."
The rise in the currency has coincided with a 30% advance in Thailand's SET Index since May, when government troops smashed anti-government protests.
Over the weekend, the Thai currency, the baht, rose to its highest level since 1997 due to an improved outlook for economic growth and expectations of more investor inflows. A current-account surplus of $5.42 billion this year through July and the fact that the Bank of Thailand has raised its benchmark interest rate twice this year have also helped the baht post the second-best performance among Asia's most-traded currencies excluding the yen.
"There has been quite a lot of demand to buy the baht from offshore, probably from foreigners to buy Thai stocks and bonds," Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp., told Bloomberg News. "Money is flowing into Asia on the region's strong economic outlook."
The rise in the currency has coincided with a 30% advance in Thailand's SET Index since May, when government troops smashed anti-government protests.
Two Asian Economies Flying Under the Radar
You know about China, India, and maybe even Korea, but there are two other Asian economies making waves in the South China Sea.
I'm talking about Singapore and Thailand.
While the U.S. economy would be really lucky to poke along at a 3% annualized rate this year and next, the fast-growing countries on the other side of the globe are ripping higher.
Regional analysts surveyed by Bloomberg News survey said they see Singapore expanding at a record pace this year of 14.9% due to improving demand for the city-state's exports. That's up from an estimate of 9% published three months ago. Singapore's economy relies on trade, finance and tourism. Its central bank said the surge would be led by a 29% expansion of manufacturing.
I'm talking about Singapore and Thailand.
While the U.S. economy would be really lucky to poke along at a 3% annualized rate this year and next, the fast-growing countries on the other side of the globe are ripping higher.
Regional analysts surveyed by Bloomberg News survey said they see Singapore expanding at a record pace this year of 14.9% due to improving demand for the city-state's exports. That's up from an estimate of 9% published three months ago. Singapore's economy relies on trade, finance and tourism. Its central bank said the surge would be led by a 29% expansion of manufacturing.
Stocks - Led by Apple Inc. - On a Hot Bull Run No Investor Should Miss
Stocks flipped out late Friday morning following an announcement of Greece's decision to seek help from the European Union and International Monetary Fund. But by the end of the session, cooler heads began to prevail and the major indexes ended well into the black, continuing the bull run.
The Dow Jones Industrial Average, Standard & Poor's 500 and Nasdaq all closed about 1.1% lower for the session, but the week's results were a lot better: flat for the Dow and S&P 500, up 0.75% for the S&P Midcap 400 and up 1.7% for the S&P Smallcap 600.
Overseas large-caps ended the week flat, though China sank another 1%. Our own top choice overseas fared better, as Market Vectors Indonesia Index (NYSE: IDX) closed the week up 4%. Another star off the week overseas was iShares MSCI Turkey Index Fund (NYSE: TUR), up 3%.
The Dow Jones Industrial Average, Standard & Poor's 500 and Nasdaq all closed about 1.1% lower for the session, but the week's results were a lot better: flat for the Dow and S&P 500, up 0.75% for the S&P Midcap 400 and up 1.7% for the S&P Smallcap 600.
Overseas large-caps ended the week flat, though China sank another 1%. Our own top choice overseas fared better, as Market Vectors Indonesia Index (NYSE: IDX) closed the week up 4%. Another star off the week overseas was iShares MSCI Turkey Index Fund (NYSE: TUR), up 3%.
Is There an Ulterior Motive for Bailing Out Greece?
Since back in December, when Fitch Ratings Inc. slashed its credit rating on Greece's debt to below investment grade for the first time in 10 years, there's been a mind-numbing flood of media coverage of that European country's debt crisis.
And yet, despite high-volume of high-level media coverage, none of the stories have picked up on a very basic - yet very key - fact...
The bailout being developed is as much for Germany as it is for Greece.
Let me explain ...
And yet, despite high-volume of high-level media coverage, none of the stories have picked up on a very basic - yet very key - fact...
The bailout being developed is as much for Germany as it is for Greece.
Let me explain ...
Regional Banks Are Bouncing Back - And You Can Profit
Our contrarian thesis in regional bank stocks has played out well in the past few weeks, as other investors are beginning to see that these companies are under-appreciated, under-priced, over-hated and over-shorted.
The iShares Regional Banks (NYSE: IAT) ripped higher by more than 8% in the past week alone. And I still think that many of these stocks have a long way to go, since fair value in some cases is 2x, 3x, and even 5x higher than current levels.
Super-regional southern bank Regions Financial Corp. (NYSE: RF), for instance, traded as high as $32.50 in 2007, then fell as low as $2.27 in 2009 - a decline of 93% in just two years. RF's recovery has gotten off to a much slower start than peers like U.S. Bancorp (NYSE: USB) because it made a lot more iffy loans along the Gulf coast. But over the past six months, it has become clear that super-low interest rates will allow RF to build enough reserve against losses. Additionally, other distressed-debt firms are stepping up to take problem mortgages off their hands.
The iShares Regional Banks (NYSE: IAT) ripped higher by more than 8% in the past week alone. And I still think that many of these stocks have a long way to go, since fair value in some cases is 2x, 3x, and even 5x higher than current levels.
Super-regional southern bank Regions Financial Corp. (NYSE: RF), for instance, traded as high as $32.50 in 2007, then fell as low as $2.27 in 2009 - a decline of 93% in just two years. RF's recovery has gotten off to a much slower start than peers like U.S. Bancorp (NYSE: USB) because it made a lot more iffy loans along the Gulf coast. But over the past six months, it has become clear that super-low interest rates will allow RF to build enough reserve against losses. Additionally, other distressed-debt firms are stepping up to take problem mortgages off their hands.
The Bull Market is Intact and On the Move
Bears have been scratching for a vulnerable spot in the bulls' narrative in the past few weeks, but have been coming up empty, as they logged a blistering March.
Sellers tried to sink the market back in February as the long-simmering Greek debt fiasco roared into the headlines, but that didn't work out so hot for them. And early last week they tried again by both highlighting new reports of discord between the European Monetary Union authorities and Greece, and by flogging the news of a Fitch Ratings Inc. downgrade of Portuguese debt.
At some point, portfolio managers outside of Europe may decide that they care about these matters but for now there has been what you might call a Gallic shrug. Tant pis, as the French say.
Sellers tried to sink the market back in February as the long-simmering Greek debt fiasco roared into the headlines, but that didn't work out so hot for them. And early last week they tried again by both highlighting new reports of discord between the European Monetary Union authorities and Greece, and by flogging the news of a Fitch Ratings Inc. downgrade of Portuguese debt.
At some point, portfolio managers outside of Europe may decide that they care about these matters but for now there has been what you might call a Gallic shrug. Tant pis, as the French say.
Indonesia Catching China's Eye
It's an open secret that Indonesia's economy is on the rise. In the spirit of March Madness, it's something of a sleeper. That's why China, which is always looking for promising new investments, is looking to make inroads there.
Indeed, China's appetite for commodities makes Indonesia - with its close proximity and abundance of natural resources - an ideal partner.
PetroChina Co. Ltd. (NYSE ADR: PTR), Sinopec, Sinosteel, Minmetals and China Investment Corp (CIC) - Beijing's $300 billion sovereign wealth fund - are all aggressively scouring South East Asia's largest economy for takeover targets and joint venture partners, the Live Trading News reported.
Indeed, China's appetite for commodities makes Indonesia - with its close proximity and abundance of natural resources - an ideal partner.
PetroChina Co. Ltd. (NYSE ADR: PTR), Sinopec, Sinosteel, Minmetals and China Investment Corp (CIC) - Beijing's $300 billion sovereign wealth fund - are all aggressively scouring South East Asia's largest economy for takeover targets and joint venture partners, the Live Trading News reported.
Bulls Overcome Market Tug of War to Send Stocks off to Strong March Start
Stocks rose briskly last week, resulting in a big week for the major market indexes. Weekly and monthly index charts improved, and such major U.S. stocks as The Boeing Co. (NYSE: BA), Hewlett Packard Co. (NYSE: HPQ), American Express Co. (NYSE: AXP), Google Inc. (NASDAQ: GOOG), Apple Inc. (AAPL), Goldman Sachs Group Inc. (NYSE: GS) and General Electric Co. (NYSE: GE) emerged from flat-lining or faltering price patterns on decent, if not outstanding, volume.
Just two weeks ago, every one of the afore-mentioned stocks looked terrible, exhibiting intense apathy amid slow, grinding declines. Then the skies parted, and suddenly the sun is shining on these shares once again.
That's why U.S. stocks are off to a strong March start - already up 4.1% from the end of February. And don't forget, a year ago at about this time (March 9, 2009), the market reached its nadir: The Standard & Poor's 500 Index is up 69.98% since that time.
Here's why the shift seems so abrupt. The markets are now in a tug of war between two forces:
Just two weeks ago, every one of the afore-mentioned stocks looked terrible, exhibiting intense apathy amid slow, grinding declines. Then the skies parted, and suddenly the sun is shining on these shares once again.
That's why U.S. stocks are off to a strong March start - already up 4.1% from the end of February. And don't forget, a year ago at about this time (March 9, 2009), the market reached its nadir: The Standard & Poor's 500 Index is up 69.98% since that time.
Here's why the shift seems so abrupt. The markets are now in a tug of war between two forces:
- On the plus side are good fourth-quarter earnings reports related to an improving economy.
- On the negative side - as a friend at a major macro hedge fund described it last week - are "frigid winds blowing across the credit icebergs."
If China Sneezes, Wall Street Will Catch A Cold
Investors who needed proof of China's increased importance in the post-financial-crisis world only have to look at the nervousness of recent weeks to get a glimpse of the future.
When U.S. stocks fell sharply late Friday, they capped off a harrowing 10-day span that has seen the broad U.S. market benchmarks drop by nearly 7%. Emerging markets are down 9%. Not surprisingly, investor fear has sent volatility rocketing 40% - the largest two-week increase since the global financial crisis went nuclear back in October 2008.
Complicating matters was the continued strengthening of the U.S. dollar - something we've been discussing and warning about for a few weeks. With fear on the rise among global investors, many are abandoning risky positions in emerging-market stocks and bonds and moving cash into the safety of U.S. Treasuries. This bolsters the dollar, which was up 4% in two weeks. That exerts a lot of pressure on commodities. Crude oil fell more than 7% during the week. Gold is down 5%.
The corporate bond market - which has been red hot lately, helping to underpin stock-market gains - continued to advance, but slipped relative to ultra-safe government debt. Tim Backshall of Credit Derivatives Research wrote in a note to clients that both high-yield and investment-grade credits have been making the longest and most consistent run of lower lows versus ultra-safe U.S. Treasuries since February 2008.
While government debt has the edge for the moment, the long-term corporate-credit bull market remains intact, according to WJB Capital Group Inc. strategist Brian Reynolds. He sees the credit bears making a run at credit-derivative products that insure against bond defaults, which are a cheap way to try to manipulate the market.
Indeed, the cost to protect against default at banks like JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS), not to mention Greece, jumped noticeably last week. But the damage has been limited as bears have failed to get traction against the instruments that they used to catalyze the 2008 credit crisis.
This lays the groundwork for a powerful snapback rally for stocks.
When U.S. stocks fell sharply late Friday, they capped off a harrowing 10-day span that has seen the broad U.S. market benchmarks drop by nearly 7%. Emerging markets are down 9%. Not surprisingly, investor fear has sent volatility rocketing 40% - the largest two-week increase since the global financial crisis went nuclear back in October 2008.
Complicating matters was the continued strengthening of the U.S. dollar - something we've been discussing and warning about for a few weeks. With fear on the rise among global investors, many are abandoning risky positions in emerging-market stocks and bonds and moving cash into the safety of U.S. Treasuries. This bolsters the dollar, which was up 4% in two weeks. That exerts a lot of pressure on commodities. Crude oil fell more than 7% during the week. Gold is down 5%.
The corporate bond market - which has been red hot lately, helping to underpin stock-market gains - continued to advance, but slipped relative to ultra-safe government debt. Tim Backshall of Credit Derivatives Research wrote in a note to clients that both high-yield and investment-grade credits have been making the longest and most consistent run of lower lows versus ultra-safe U.S. Treasuries since February 2008.
While government debt has the edge for the moment, the long-term corporate-credit bull market remains intact, according to WJB Capital Group Inc. strategist Brian Reynolds. He sees the credit bears making a run at credit-derivative products that insure against bond defaults, which are a cheap way to try to manipulate the market.
Indeed, the cost to protect against default at banks like JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS), not to mention Greece, jumped noticeably last week. But the damage has been limited as bears have failed to get traction against the instruments that they used to catalyze the 2008 credit crisis.
This lays the groundwork for a powerful snapback rally for stocks.
To find out more about the China Surprise, read on ...
Will Stocks Rebound From Last Week's Beating?
Stocks slipped sharply in the past three days as the underlying market weakness we've been highlighting for the past two weeks finally mattered. A number of better-than-expected earnings reports were ignored. Even the successful election of a Republican to one of Massachusetts' two Senate seats, which helped health-care stocks push the market up on Tuesday, wasn't enough.
Look at it this way: The sellers won a round, after being absolutely bludgeoned since last March.
One of the key catalysts has been word that Chinese authorities are ordering some banks to curb lending -- another sign that China is tightening monetary policy in an effort to forestall a runaway credit bubble. Or maybe it was the Chinese government's decision to pull James Cameron's fanciful and rebellious "Avatar" movie out of its theatres. It's easy to get caught up in the Chinese growth story and forget how oppressive the communist regime running the show there is; these people crushed students to death with tanks.
Look at it this way: The sellers won a round, after being absolutely bludgeoned since last March.
One of the key catalysts has been word that Chinese authorities are ordering some banks to curb lending -- another sign that China is tightening monetary policy in an effort to forestall a runaway credit bubble. Or maybe it was the Chinese government's decision to pull James Cameron's fanciful and rebellious "Avatar" movie out of its theatres. It's easy to get caught up in the Chinese growth story and forget how oppressive the communist regime running the show there is; these people crushed students to death with tanks.
Ignore the Crowd ... It's Time to Invest in Commercial Real Estate
Of all the independent institutional research that I receive, some of my favorite comes from Justin Mamis, a veteran of all the financial wars we've seen over the past five decades.
Although he's steadfastly bearish, no matter the climate - like those codgers you see wearing heavy coats on sunny days in Florida - the Canadian analyst has lasted so long because he's quick with colorful phrases, and his research is amusing and insightful.
Just last week, Mamis recounted a conversation he had enjoyed years ago at the table of his new boss, the legendary analyst/historian/portfolio manager Don Coxe: "At dinner, [Coxe] would lean back in his chair in that professorial manner of his and "remind" the guests that the Sanhedrin, the Hebrew Court of Law, had a rule that if every member voted the same way, the decision went the other way," Mamis wrote. "Unanimity had to be misguided."
That story got me thinking: What is one investment theme that the public and/or pros could agree on today?
Although he's steadfastly bearish, no matter the climate - like those codgers you see wearing heavy coats on sunny days in Florida - the Canadian analyst has lasted so long because he's quick with colorful phrases, and his research is amusing and insightful.
Just last week, Mamis recounted a conversation he had enjoyed years ago at the table of his new boss, the legendary analyst/historian/portfolio manager Don Coxe: "At dinner, [Coxe] would lean back in his chair in that professorial manner of his and "remind" the guests that the Sanhedrin, the Hebrew Court of Law, had a rule that if every member voted the same way, the decision went the other way," Mamis wrote. "Unanimity had to be misguided."
That story got me thinking: What is one investment theme that the public and/or pros could agree on today?
For more insight on the investment move to make now, read on ...