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"The
Stock Market Pulse" $49.95/month value Weekly review of
the markets Last week, our worries came to fruition: Lehman Brothers created havoc helped by AIG who’s threading water and the Bank of America that bought out Merril Lynch to save it from chapter 11. Wow! What’s next Washington Mutual? How many times have experts told us the worst was behind us over the last few months? It has never been more unsure! Even the odds Fed would lower the interest rate 25 points was up to 80% when the weeks before these odds were 0%! Tuesday was going to answer this important question. Monday started off with a pretty gleam outlook already when Industrial production for August came out lower then expected at -1.1% vs. -0.3%. We then started to read left and right that this might actually be the worst crisis since the great depression of 1929! Oil prices continued to drop but didn’t help the market since its drop was caused by the economic slow down which affects demand. The S&P500 lost 4.7% and the Dow more then 500 points which was its worst day since 911… Tuesday before meeting at the FOMC, the Fed announced a $70 Billion
injection of cash in the financial sector to add liquidity. The CPI came out
as planned at +0.2% and -0.1%. The Fed’s measures paid off, even after
announcing it wouldn’t touch the interest rate; although the market plunged immediately
after the news, it rallied back and finished higher on the day. Wednesday was almost as bad as Monday with new construction hitting a 17 year low. The FED rescuing AIG with a $85B loan in exchange for 80% participation. Thursday many central banks combined their efforts injecting more cash in the financial system and forbidding the shorting of financial stocks while scary rumors were in circulation about Washington Mutual, Morgan Stanley, Wells Fargo and Wachovia. The market opened higher but fell back in the afternoon until an announcement was made that the Fed, the Treasury and Congress were working together to create a « Resolution Trust Corporation » which is similar to the one put in place during the « Savings and Loans » crisis in the 90’s reversed the down trend dramatically erasing most of the loss from the day before! Friday, they had a plan. The announcement that shorting of the financial sector would be banned caused a huge “short covering” stampede. Plus, since it was a quadruple witching Friday, the volatility was heightened as if we needed more! The new agency, the « Resolution Trust Corporation », or RTC for short, as for a mandate, to help liquidate real estate and financial assets which it inherited from insolvent thrift institutions so the market really liked these measures and took back most of what was lost during the violent debacle earlier in the week. The Dow even took back 800 points in two days…What a week!!! This Week, following
a historically volatile week, when the activities are driven by extraordinary
events and by governmental and monetary interventions, technical analysis
looses a lot of validity. Volatility is simply too high, reversals too
unpredictable and sudden and the spread between offer and demand is higher
then usual which increases the risks. Volatility is at its highest has shown by the VIX index. There won’t be that many important economic news but really, it doesn’t matter since that’s not what it’s about these days! What will have an impact is anything to do with Washington Mutual, Morgan Stanley, Wells Fargo and Wachovia. Will they reorganize be bought out or merge? This will represent the main test of the new measures put in place by the Fed and by the massive cash injections. One thing is for sure: The uncertainty is at its peek (see VIX index.)
Technically, it looks like we have a major reversal but it will only hold if the previously mentioned institutions pull through… So, I won’t make prediction this week, it’s would just be gambling. One thing I can say though is be careful since we might be in for a few more roller coaster rides… Here’s a look at the VIX chart
Now, even if I said not much else would matter let’s still have a look at the upcoming economic news this week : ( Soon to be for Investor Rules members only ) Not a member yet? Just go to http://www.InvestorRules.com/gold-membership.html Economic calendar Monday
September 22nd NO planned significant news Tuesday
September 16th ICSC-UBS
Store Sales
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.. Why Do Investors Care? Consumer spending accounts for more than two-thirds of the
economy, so if you know what consumers are up to, you'll have a pretty good
handle on where the economy is headed. Needless to say, that's a big
advantage for investors. Redbook Definition A weekly measure of sales at chain stores, discounters, and department
stores. It is a less consistent indicator of retail sales than the weekly
ICSC index. It is also calculated differently than other indicators. For
instance, figures for the first week of the month are compared with the
average for the entire previous month. When two weeks are available, then
these are compared with the average for the previous month, and so on. It
might be more useful to compare year-over-year figures since these are indeed
compared to the comparable week a year ago. This index is correlated with the
general merchandise portion of retail sales covering only about 10 percent of
total retail sales. Why Do Investors Care? Consumer spending accounts for two-thirds of the economy, so
if you know what consumers are up to, you'll have a pretty good handle on
where the economy is headed. Needless to say, that's a big advantage for
investors. State
Street Investor Confidence Index Definition The State Street Investor Confidence Index measures confidence by looking at actual levels of risk in investment portfolios. This is not an attitude survey. This index is current since it uses data collected at the close of the previous Wednesday and is reported on the second to last Tuesday of each month Why Do Investors Care? Conventional wisdom suggests investors are confident when
stocks are rising and pessimistic when falling. But in fact, the State Street
group notes prices tend to be higher when economic fundamentals are strong;
i.e., when economic indicators are growing at a healthy clip. But a good
investor confidence measure "should indicate whether, for a given set of
fundamentals, investors are bullish or bearish on risky assets." Wednesday September 24th MBA
Purchase Applications Definition The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction. Why Do Investors Care? This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. Existing
Home Sales Definition Why Do Investors Care? This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. EIA
Petroleum Status Report Definition The Energy Information
Administration (EIA) provides weekly information on petroleum inventories in
the U.S., whether produced here or abroad. The level of inventories helps determine
prices for petroleum products. Why Do Investors Care? Petroleum product prices are
determined by supply and demand - just like any other good and service.
During periods of strong economic growth, one would expect demand to be
robust. If inventories are low, this will lead to increases in crude oil
prices - or price increases for a wide variety of petroleum products such as
gasoline or heating oil. If inventories are high and rising in a period of
strong demand, prices may not need to increase at all, or as much. During a
period of sluggish economic activity, demand for crude oil may not be as
strong. If inventories are rising, this may push down oil prices. Thursday September 18th Durable
Goods Orders Definition Durable goods orders reflect the new orders placed with domestic
manufacturers for immediate and future delivery of factory hard goods. The
first release, the advance, provides an early estimate of durable goods
orders. About two weeks later, more complete and revised data are available
in the factory orders report. The data for the previous month are usually
revised a second time upon the release of the new month's data. (Bureau of
the Census, U.S. Department of Commerce) Why Do Investors Care? Investors want to keep their finger on the pulse of the
economy because it usually dictates how various types of investments will
perform. Rising equity prices thrive on growing corporate profits - which in
turn stem from healthy economic growth. Healthy economic growth is not
necessarily a negative for the bond market, but bond investors are highly
sensitive to inflationary pressures. When the economy is growing too quickly
and can't meet demand, it can pave the road for inflation. By tracking
economic data such durable goods orders, investors will know what the
economic backdrop is for these markets and their portfolios. Jobless
Claims Definition New unemployment claims are
compiled weekly to show the number of individuals who filed for unemployment
insurance for the first time. An increasing (decreasing) trend suggests a
deteriorating (improving) labor market. The four-week moving average of new claims
smoothes out weekly volatility. Why Do Investors Care? Jobless claims are an easy way
to gauge the strength of the job market. The fewer people filing for
unemployment benefits, the more have jobs, and that tells investors a great
deal about the economy. Nearly every job comes with an income that gives a
household spending power. Spending greases the wheels of the economy and
keeps it growing, so a stronger job market generates a healthier economy. There's a downside to it,
though. Unemployment claims, and therefore the number of job seekers, can
fall to such a low level that businesses have a tough time finding new
workers. They might have to pay overtime wages to current staff, use higher
wages to lure people from other jobs, and in general spend more on labor
costs because of a shortage of workers. This leads to wage inflation, which
is bad news for the stock and bond markets. Federal Reserve officials are
always on the look out for inflationary pressures. By tracking the number of
jobless claims, investors can gain a sense of how tight, or how loose, the
job market is. If wage inflation threatens, it's a good bet that interest
rates will rise, bond and stock prices will fall, and the only investors in a
good mood will be the ones who tracked jobless claims and adjusted their
portfolios to anticipate these events. Just remember, the lower the
number of unemployment claims, the stronger the job market, and vice versa. New Home
Sales 10:00ET Definition New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances. Why Do Investors Care? This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. EIA Natural Gas Report
Definition Why Do Investors
Care? Friday September19 Corporate
Profits Definition Corporate profits, as reported by the Bureau of Economic Analysis (BEA), are summarized briefly as the income of organizations treated as corporations in the national income and product accounts. The BEA reports several measures of profits. Profits from current production (corporate profits with inventory valuation and capital consumption adjustment), are also known as operating or "economic" profits. Capital consumption adjustment deals with the differences in depreciation allowances used for accounting and income tax purposes. Inventory valuation adjustment (IVA) deals with the difference in measuring the cost of inventory replacement. Book profits amount to operating profits subtracting out inventory valuation and capital consumption adjustments. After tax profits are book profits after taxes are subtracted. The Econoday reports will focus on after tax profits reported by the BEA, since these are the most relevant. The corporate profit figures that are derived from the national income and product accounts (NIPA) depend on GDP growth. They don't always move in the same direction or the same magnitude as the profit data reported directly by individual companies or even the S&P 500. Why Do Investors Care? Corporate profits are the lifeblood of investment spending. Profits are the income of a corporation. When profits are strong, then companies will be able to increase their capital spending. This could allow better growth prospects for a company and is likely to increase its underlying value. When corporate profits decline, then capital spending tends to decline. Without the potential for growth, a company could be at a disadvantage, particularly in our global economic environment. Corporate profits also reveal the health of an organization. When a company's profits are anemic during economic expansion, it suggests that the company is not performing efficiently. The value of an inefficient company is determined by its stock price. Thus weak profits signal lower stock prices. When a company's profits are relatively strong, even during an economic downturn, it usually means that the organization is well-managed. The higher value for this type of company is reflected in a higher stock price. Gross Domestic Product (final) Real GDP-Q/Q change- GDP price index -Q/Q change- Definition
Why Do Investors
Care?
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio. Consumer Sentiment Definition The University of Michigan
consumer surveyquestions 500 households each month on their financial conditions
and attitudes about the economy. Consumer sentiment is directly related to
the strength of consumer spending. Consumer confidence and consumer sentiment
are two ways of talking about consumer attitudes. Among economic reports,
consumer sentiment refers to the Michigan survey while consumer confidence
refers to The Conference Board's survey. Why Do Investors Care? The pattern in consumer
attitudes and spending is often the foremost influence on stock and bond
markets. For stocks, strong economic growth translates to healthy corporate
profits and higher stock prices. For bonds, the focus is whether economic
growth goes overboard and leads to inflation. Ideally, the economy walks that
fine line between strong growth and excessive (inflationary) growth. This
balance was achieved through much of the nineties. For this reason alone,
investors in the stock and bond markets enjoyed huge gains during the bull
market of the 1990s. Consumer confidence did shift down in tandem with the
equity market between 2000 and 2002 and then recovered in 2003 and 2004.
Consumers became more pessimistic in 2005 when gasoline prices surged. That's it for the economic calendar this week and for this outlook on what we can expect in the markets this week so use it wisely, and prosper… :-) Yours truly,
www.InvestorRules.com
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