Friday September 16, 2011
Readers
I have been literally swamped this past week with other duties than my first love, tracking the markets for you. Here is a summary of where we are, the Fall Low came early, investors have been side tracked by the European shenanigans. My weekly column sums this up. Expect a return to our weekend updates by this Sunday. Thanks for reading The Market Perspective!
The Grinch Arrives Early
The devious, anti-holiday spirit of the character has led to the name "Grinch" becoming a term used to describe a person opposed to Christmas time celebrations or to someone with a coarse, greedy attitude.
Dr. Seuss creation, The Grinch
Seasonally the stock market usually makes a low in September or October. That sets the stage for a rally into the next year, usually beginning in November. This year, the Grinch, who throws a wrench in things, arrived early, August 8-9 to be specific. And European antics have further taken investor eyes off the ball. Let’s take a look.
The era of financial asset domination fittingly ended with the dot.coms in March of 2000. The cheerleading for the NASD at 5,000 was accompanied by a new wave of companies, raising lots of money in public offerings, but making no money in their operations. And so, that provided a fitting end to the financial bull market from 1982-2000. While investors were gaga over stocks, the real buys of course were in commodities. By March, 2000 crude oil has just pulled itself up from $12 to $30.
Since then stocks have trended sideways while commodities of all types have had spectacular run ups, oil hit $145 in 2008, and co fell back to $35. But, remember that price? Yes, the correction for oil in 2008 stopped at the top for oil from year 2000,which was the mid $30s.
Different markets move at different rates of speed. Imagine a crowded highway of eighteen wheelers, motorbikes, economy cars, and luxury sport models all speeding along. They speed up and slow down at different rates rom one another.
The same thing has happened since 2000 and will continue to happen.
Crude oil lost 25% of its value from late July to August 8. The Energy Service Sector swooned along with it. Now, Patterson PTEN, and crude oil, are slowly making a series of higher lows. Crude oil actually flashed a buy signal on our weekly charts, the first since its high in May. The Grinch low for Fall, 2011 is in. We are likely to experience a continued slow rally in stocks and oil and energy service for another couple of months. This, as we said in the opening, has surprised investors expecting, a seasonal low later this fall. But after all, if one has been watching the news ‘across the pond,’ it was easy to be distracted.
The Club Med countries, Portugal, Spain, Greece, threw financial parties giving the French and German banks some real headaches. The reason is that those banks lent money to the countries which were clearly violating their European Union fiscal accords. Portugal, Spain, Greece (and Italy) spent and promised more than they took in, period, never mind the fancy financial jargon. Now they are unable to pay pensioners, the bills, and their creditors, the banks.
The result has been a literal repeat of 2008 for European banks. BNP Paribas (France) and Deutsche Bank (Germany) both had their stock prices cut in half from July to September. Investors feared a Greek bankruptcy would spread domino like across the Mediterranean leaving the banks holding worthless bonds (Remember the Trojan Horse, beware Greeks bearing gifts?)
With European banks melting like ice cream cones on July 4, German Prime Minister Merkel declared no such Greek bankruptcy would happen on her watch! And so for the time being, the bleeding has stopped. The EU Central Bank and other Central Banks are loaning dollars to the French and Germans. And so, the latest once every two months European ‘fix’ for Club Med is in, for now.
Not surprisingly, the exact recent low for the US Dollar occurred May 1, just as oil, stocks and banks began tanking. The buck advanced above its daily moving averages. I suspect the Dollar will consolidate those gains for the next couple of months while oil, stocks, and even European Banks breath a sigh of relief. The Grinch has been chased away for the time being.
Investors cheered on luxury goods maker Ralph Lauren which hit a new high this week.
And so, confidence returns to the fashion runway, and the oil field, for the next couple of months, or weeks....
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