September 30, 2011 Friday
The DOW dropped about 12% this past quarter.
The World is waking up to the Chinese slowdown which we have discussed since last November. Yesterday the market dumped luxury makers that have run into the Chinese market.
We have discussed what we think have been over priced high fliers. Some of them are now getting a come uppance like NFLX below. That's a 62% drop since July, some bear market.
No doubt mutual and hedge funds dumped the shares rather than have them on the holdings list at quarter end. Let's wait for the week to end to examine the internals. But as I mentioned last evening, they are not improving and that looks to be setting up a final wave collapse into classic seasonal weakness for October.
Here is the US Dollar shown via UUP in red and black versus Patterson PTEN, the icon for energy services, and the energy complex. Remember weak energy prices mean a weak economy.
Higher dollars are weakening stocks, oil and metals. The low in stocks et al will come with a Dollar top, Let's watch that indicator for October.
Yes values in stocks are falling. But that is the nature of social mood and valuation. Just ten years ago, silver was going begging at $3.50man ounce. After a 50% collapse it now trades for 7-8x times that value.
Yet it we know from chemistry class that the composition of silver is unchanged. The composition of the social mood towards silver however has radically changed. Recall our analogy to the hourglass. The social mood towards the markets moves from one end of the glass to the other. Right now the mood is negative. Recall that front page article Monday in the WSJ,
As much money flowed out of mutual funds since June 1 as flowed in since March, 2009. The wonder is that the indices are still as high as they are.
Please remember that investment markets operate exactly opposite of the classic economic supply and demand mode. At $300 NFLX was a mutual fund must have hold. At $120, down 62%, no one wants it.
One can say the same for $115 oil, $1900 gold, $49 silver, and $4.50 copper, all are now on sale and wanting for buyers. Smaller stocks in the Russell 2000 have been crushed as there are no buyers. This is a classic set up for a seasonal low in the fall.
And so portfolio manges dumped unpopular stocks like NLFX and luxury goods. It will be interesting to see what they finish up buying today.
How cheap are stocks? Berkshire is going for book value. And Chairman Warren Buffet himself had to step up and buy it at that price, to convince everyone that indeed it is a buy. That is a pretty serious sign of a socionomic disinterest in stocks......