Saturday September 18, 2010
By THEAN LEE CHENG
WHILE much of the Western world today continues to suffer the effects of the global financial crisis of 2008/09, Asia has moved on. It is probably in this process of moving on that there is much concern about the property prices today, as seen in several readers writing in calling for curbs to speculation.
RAM Holdings Bhd group chief economist Dr Yeah Kim Leng says prices began to rise during the second half of last year but surge the first half of this year, particularly for landed units.
Although the 1998 Asian Financial Crisis took its toll on the Malaysian property sector, the sector was not affected by the 2008/09 global crisis.
“Our main concern today is the escalation in property prices. We do not see an economy-wide bubble. It is location specific. If the situation persists, it will have a spillover effect on the broader market segment. The effect is more noticeable in Penang, although certain locations in Kuala Lumpur are also affected. The double-digit growth may be sustainable for a year or two, but if it continues, there is the high likelihood that we will experience a bubble,” says Yeah.
Yeah’s views are echoed by property consultancy Khong & Jaafar Sdn Bhd managing director Elvin Fernandez.
“For a number of years after the Asian Financial Crisis, house prices hovered at about four times our annual household income. In some countries, it is three times. When prices increase six to seven times the household income, that is known as a bubble. In the last six months or so, there are a few locations where prices have started to run up. It is still not alarming as it has not yet affected the entire market.”
Both Yeah and Fernandez also concur that there are two key factors which are supporting this sharp run-up on prices – low interest and easy credit financing.
Prior to this sharp run-up on prices, the middle income group could afford a certain type of housing, in a certain location. Of late, the group discovers that this has gone beyond their reach.
At the same time, the number of people in the high-income bracket has also increased and their strong purchasing power has enabled them to snap up properties as an investment asset.
“Both these factors were present last year because of the counter measures taken by the Government to stimulate domestic demand.
“This has resulted in a boost in demand and the rush to buy in anticipation that prices will go up.
“Fundamentally, one may think it is not affordable but the expectation of higher prices stays with speculators. And the market becomes frothy,” says Yeah.
When prices go beyond fundamentals – an overshot in prices – rental yield is affected. If this situation is confided to selected schemes, the negative impact is limited. It is the high income bracket that will be affected.
A reasonable rental return is 3% to 5% nett depending on the type of house. But with various new areas coming up, yield has gone to 2% or below.
“These are dangerous levels from the household income perspective and also from the rental perspective,” says Fernandez.
Added to that is speculation, with some people buying five to 10 houses in one go, says Fernandez. The 5/95 schemes and other variants of it, where you pay RM2,000 to RM3,000 and need not pay anything until the property is completed, is an invitation to speculate.
Speculation, says Yeah, is another of RAM’s other concern as this is likely to affect non-performing loans (NPLs).
“At this point in time, the latest figures show that NPLs have not increased. That is one of the arguments that there is no bubble. What banks need to do is to ensure that lending is not generating speculation,” says Yeah.
The total exposure of banks to the property sector is about 40% in terms of mortgages and lending for construction loans.
Sunday, September 19, 2010
Tuesday, September 7, 2010
A TALE OF TWO CITIES
Contrast the gloom of the WEST and upbeat mood of the EAST.
" What has been will be again,
What has been done will be done again,
There is nothing new under the sun. "
All good things comes to an end and from every time of sorrow, good times will come again.
STORY A (IN THE WEST)
Wednesday September 8, 2010
Rising risk of double-dip recession
COMMENT
By NOURIEL ROUBINI
THE global economy is headed towards a massive slowdown this year and next. The global economic recovery since the severe recession of 2008–2009 has been artificially boosted by a massive monetary and fiscal stimulus and the backstopping and bailout of the financial system.
But the fundamental excesses that led to the crisis – too much debt and leverage of the private sector (households, banks and other financial institutions, and even a fat-tail of the corporate sector) – have not been addressed as private sector deleveraging has barely started.
At the same time, there is now massive re-leveraging of the public sector in advanced economies with massive budget deficits and public debt accumulation driven by automatic stabilisers, counter-cyclical Keynesian fiscal stimulus and socialisation of the private losses (massive fiscal costs of bailing out the financial system).
Thus, at best, we will have a protracted period of anaemic sub-par, below-trend growth in advanced economies as the deleveraging of households, financial institutions and, soon, enough governments starts to kick in.
Moreover, at the global level, the countries that spent too much now need to deleverage – in the United States, Britain, Spain, Greece and elsewhere – and now they are spending, consuming and importing less. But those countries that saved too much – China, emerging Asia, Germany and Japan – are not spending more to compensate for the fall in spending of the first group.
Thus, in a world of excess supply, the recovery of global aggregate demand will be weak, pushing global growth much lower.
The global economic slowdown, which is already evident from the data for the second quarter of 2010, will accelerate in the second half of the year. The fiscal stimulus will become a drag on growth as austerity programme in most countries kick in.
The inventory adjustment, which boosted growth for a few quarters, will run its course. The effects of tax policies that stole demand from the future, such as “cash-for-clunkers” schemes in most countries, investment tax credits, tax credits for homebuyers or cash for green appliances, will fizzle out as they have all expired.
Labour market conditions are still very weak with little job creation and a sense of malaise is spreading among consumers.
The most likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double-dip.
In the United States, growth was already below trend even in the first half (2.7% in the first quarter and tracking a mediocre 2.2% in the second quarter). It will further slow to 1.5% growth in the second half of this year and into 2011.
Thus, even if we technically avoid a double-dip it will feel like a recession, given the mediocre job creation and further rise in unemployment; larger cyclical budget deficits; a further fall in home prices; banks’ larger losses on mortgages, consumer credit and other loans; and the risk that the US Congress will take protectionist actions against China which has allowed only a token appreciation of its currency.
Outlook for eurozone worse still
In the eurozone, the outlook is even worse. Growth is likely to be closer to zero by the end of the year, as fiscal austerity and stock market declines, along with a sharp rise in sovereign, corporate and interbank liquidity spreads, increase the cost of capital.
Increases in risk aversion, volatility and sovereign risk will also further undermine business, investor and consumer confidence in Europe and around the world, while the weakening of the euro hurts the export and growth prospects of the United States, China and emerging Asia.
Even in China, the policy tightening to deal with its economic overheating and the rise in goods and asset inflation is now slowing down growth. The slowdown in advanced economies’ growth and the weakening of the euro will further dent Chinese growth in the second half of the year. The world’s leading growth locomotive is thus slowing, from 11%-plus towards a 7% rate by the year-end.
This is bad news for export growth in the rest of Asia and among commodities exporters, which increasingly rely on Chinese imports.
An important victim will be Japan, whose domestic demand is anaemic as real income growth is anaemic and which relies mostly on exports to China for its economic growth.
Japan also suffers from low potential growth, given the lack of structural reforms, and weak and ineffective governments (four prime ministers in four years), a large stock of public debt, scary ageing demographics, and a strong yen that gets stronger during bouts of global risk aversion.
A scenario in which the US growth slumps to a mediocre 1.5%, where eurozone and Japan’s growth slows closer to zero than 1%, and where China slows below 8%, is not a global double-dip but it will feel awfully close to one.
Also, any additional shock could tip this fragile global economy, which is growing close to a stall speed, into a full-fledged double-dip. The sovereign problems of the eurozone could get worse, leading to another round of risky asset-price correction, global risk aversion, and volatility and financial contagion that will hurt the region and the world.
Vicious circle
A vicious circle of asset-price correction leading to weaker growth and in turn downside surprises to growth, which are not currently priced by markets and causing further asset prices falls, could occur like the one that tipped the global economy into a global recession in 2008-2009.
One cannot exclude that Israel will strike Iran in the next 12 months; then oil prices could rapidly spike and, like the summer of 2008, tip the global economy into a recession.
Finally, policymakers are running out of policy bullets – which have been already overused in the last three years – in the event the risks of a double-dip rise. Some additional quantitative easing will not make much of a difference. There is little room for further fiscal stimulus in most advanced economies. And the ability to bail out financial systems that are too-big-to-fail but also too-big-to-be-saved – given the fiscal strains of many sovereign – will be sharply constrained.
Thus, as the delusions of optimists for a rapid V-shaped recovery are now out of the window, the advanced world will be at best in a long U-shaped recovery that in some cases, in eurozone and Japan, may be long enough that it will stretch into an L-shaped near depression. And it will struggle to avoid a W-shaped double-dip recession.
In this world even a V-shaped recovery in stronger emerging markets will be dented as no country is an island and many emerging market economies, starting with China, are seriously dependent on the growth of now anaemic and retrenching advanced economies.
So, fasten your seat belts as it will be a very bumpy ride for the global economy.
STORY B (IN THE EAST)
Wednesday September 8, 2010
Hot property market still grabbing attention
By ANGIE NG
PROPERTY, especially the hot housing market, has become a favourite topic these days. Malaysians are generally quite savvy investors and their penchant for viable investment instruments have contributed to the current run-up in the housing market.
The availability of easy housing facilities, including the 5:95 and 10:90 packages, is also fuelling the strong buying interest.
According to the National Property Information Centre in its latest property market report, average house prices have risen 19% to RM273,000 in the first half of this year, from RM220,000 in the same period last year.
In Kuala Lumpur, prices rose about 35% to more than RM700,000 in the first half of the year, up from RM523,000 last year.
The strong jump in house prices in the past six months in some parts of the Klang Valley and Penang have raised concerns that unchecked speculative buying may cause overheating and result in a property bubble.
Bank Negara is keeping a close watch on the market and is engaging with banks on possible measures to curb excessive speculation on properties. It may consider imposing a 80% loan-to-value ratio (LVR) cap for mortgages to avert the risk of a potential property bubble.
The news have caused concern among industry and consumer groups over its dampening effect on affordability level and buying sentiment.
They worry that if the loan limit is brought down to 80%, many first-time house buyers, including those who have just joined the work force and the lower income group, may not be able to fork out the 20% downpayment for a house.
Their contention is that the proposed mortgage loan limit should not be imposed across the board and should give due consideration and flexibility to first-time buyers and those buying lower priced units priced below RM500,000.
Bank sources said Bank Negara’s aim of imposing the 80% mortgage loan cap was to reign in on speculative buying by certain quarters and the measure would be targeted at the high-end and non-owner occupied houses.
A blanket LVR cap will unlikely be imposed given the differing level of speculation in the various housing segments.
Given that houses of less than RM500,000 still constitute the bulk of transactions, accounting for 94% of the total number of units sold and 68% of sales value last year, the mass housing market may be spared. First-time house buyers may also be exempted from the proposed measure.
Should the proposed LVR cap materialise, houses priced from RM500,000 may be affected the most.
The mortgage loans market is now quite liberalised as the central bank does not impose any standard policy on mortgage loans but leaves it to the banks to manage.
Most banks have traditionally provided loans of up to 90% of the value of the property until about two years ago when market sentiment was impacted by the global financial crisis.
To stem the weak property sales, developers and their panel of bankers came out with different variants of housing loan packages that allow buyers to sign up for a house with just a 5% downpayment of the property value. Some even go as far as doing away with any downpayment and eligible buyers are granted the maximum 100% loan.
Although it has been almost two years since the introduction of these easy financing facilities to raise the affordability level for house buyers, these packages are still around in various forms today.
In fact, banks are still flushed with liquidity and are competing to get a bigger slice of the mortgage loan market. The stiff competition among banks has resulted in a mortgage price war with lending rates dropping to as low as base lending rate minus 2.3%.
But things have changed substantially in the past six months or so, and it should be time to review these housing packages.
If house buyers are made to pay higher downpayments for their purchases, the risk of their loans turning bad will be lower compared with if they have paid lower or zero downpayments.
We must not forget that the massive sub-prime housing debts in the United States that turned bad had triggered the global financial crisis two years ago and the world is still paying a heavy price for it today.
Although the LVR cap could dampen property market, demand for quality products in prime locations is expected to remain strong although buyers will be more selective.
Ultimately, if the proposed mortgage cap succeeds in cooling off the rapid rise in prices, especially for landed upper medium to high end residences, it should ensure a more sustainable and resilient property market.
" What has been will be again,
What has been done will be done again,
There is nothing new under the sun. "
All good things comes to an end and from every time of sorrow, good times will come again.
STORY A (IN THE WEST)
Wednesday September 8, 2010
Rising risk of double-dip recession
COMMENT
By NOURIEL ROUBINI
THE global economy is headed towards a massive slowdown this year and next. The global economic recovery since the severe recession of 2008–2009 has been artificially boosted by a massive monetary and fiscal stimulus and the backstopping and bailout of the financial system.
But the fundamental excesses that led to the crisis – too much debt and leverage of the private sector (households, banks and other financial institutions, and even a fat-tail of the corporate sector) – have not been addressed as private sector deleveraging has barely started.
At the same time, there is now massive re-leveraging of the public sector in advanced economies with massive budget deficits and public debt accumulation driven by automatic stabilisers, counter-cyclical Keynesian fiscal stimulus and socialisation of the private losses (massive fiscal costs of bailing out the financial system).
Thus, at best, we will have a protracted period of anaemic sub-par, below-trend growth in advanced economies as the deleveraging of households, financial institutions and, soon, enough governments starts to kick in.
Moreover, at the global level, the countries that spent too much now need to deleverage – in the United States, Britain, Spain, Greece and elsewhere – and now they are spending, consuming and importing less. But those countries that saved too much – China, emerging Asia, Germany and Japan – are not spending more to compensate for the fall in spending of the first group.
Thus, in a world of excess supply, the recovery of global aggregate demand will be weak, pushing global growth much lower.
The global economic slowdown, which is already evident from the data for the second quarter of 2010, will accelerate in the second half of the year. The fiscal stimulus will become a drag on growth as austerity programme in most countries kick in.
The inventory adjustment, which boosted growth for a few quarters, will run its course. The effects of tax policies that stole demand from the future, such as “cash-for-clunkers” schemes in most countries, investment tax credits, tax credits for homebuyers or cash for green appliances, will fizzle out as they have all expired.
Labour market conditions are still very weak with little job creation and a sense of malaise is spreading among consumers.
The most likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double-dip.
In the United States, growth was already below trend even in the first half (2.7% in the first quarter and tracking a mediocre 2.2% in the second quarter). It will further slow to 1.5% growth in the second half of this year and into 2011.
Thus, even if we technically avoid a double-dip it will feel like a recession, given the mediocre job creation and further rise in unemployment; larger cyclical budget deficits; a further fall in home prices; banks’ larger losses on mortgages, consumer credit and other loans; and the risk that the US Congress will take protectionist actions against China which has allowed only a token appreciation of its currency.
Outlook for eurozone worse still
In the eurozone, the outlook is even worse. Growth is likely to be closer to zero by the end of the year, as fiscal austerity and stock market declines, along with a sharp rise in sovereign, corporate and interbank liquidity spreads, increase the cost of capital.
Increases in risk aversion, volatility and sovereign risk will also further undermine business, investor and consumer confidence in Europe and around the world, while the weakening of the euro hurts the export and growth prospects of the United States, China and emerging Asia.
Even in China, the policy tightening to deal with its economic overheating and the rise in goods and asset inflation is now slowing down growth. The slowdown in advanced economies’ growth and the weakening of the euro will further dent Chinese growth in the second half of the year. The world’s leading growth locomotive is thus slowing, from 11%-plus towards a 7% rate by the year-end.
This is bad news for export growth in the rest of Asia and among commodities exporters, which increasingly rely on Chinese imports.
An important victim will be Japan, whose domestic demand is anaemic as real income growth is anaemic and which relies mostly on exports to China for its economic growth.
Japan also suffers from low potential growth, given the lack of structural reforms, and weak and ineffective governments (four prime ministers in four years), a large stock of public debt, scary ageing demographics, and a strong yen that gets stronger during bouts of global risk aversion.
A scenario in which the US growth slumps to a mediocre 1.5%, where eurozone and Japan’s growth slows closer to zero than 1%, and where China slows below 8%, is not a global double-dip but it will feel awfully close to one.
Also, any additional shock could tip this fragile global economy, which is growing close to a stall speed, into a full-fledged double-dip. The sovereign problems of the eurozone could get worse, leading to another round of risky asset-price correction, global risk aversion, and volatility and financial contagion that will hurt the region and the world.
Vicious circle
A vicious circle of asset-price correction leading to weaker growth and in turn downside surprises to growth, which are not currently priced by markets and causing further asset prices falls, could occur like the one that tipped the global economy into a global recession in 2008-2009.
One cannot exclude that Israel will strike Iran in the next 12 months; then oil prices could rapidly spike and, like the summer of 2008, tip the global economy into a recession.
Finally, policymakers are running out of policy bullets – which have been already overused in the last three years – in the event the risks of a double-dip rise. Some additional quantitative easing will not make much of a difference. There is little room for further fiscal stimulus in most advanced economies. And the ability to bail out financial systems that are too-big-to-fail but also too-big-to-be-saved – given the fiscal strains of many sovereign – will be sharply constrained.
Thus, as the delusions of optimists for a rapid V-shaped recovery are now out of the window, the advanced world will be at best in a long U-shaped recovery that in some cases, in eurozone and Japan, may be long enough that it will stretch into an L-shaped near depression. And it will struggle to avoid a W-shaped double-dip recession.
In this world even a V-shaped recovery in stronger emerging markets will be dented as no country is an island and many emerging market economies, starting with China, are seriously dependent on the growth of now anaemic and retrenching advanced economies.
So, fasten your seat belts as it will be a very bumpy ride for the global economy.
STORY B (IN THE EAST)
Wednesday September 8, 2010
Hot property market still grabbing attention
By ANGIE NG
PROPERTY, especially the hot housing market, has become a favourite topic these days. Malaysians are generally quite savvy investors and their penchant for viable investment instruments have contributed to the current run-up in the housing market.
The availability of easy housing facilities, including the 5:95 and 10:90 packages, is also fuelling the strong buying interest.
According to the National Property Information Centre in its latest property market report, average house prices have risen 19% to RM273,000 in the first half of this year, from RM220,000 in the same period last year.
In Kuala Lumpur, prices rose about 35% to more than RM700,000 in the first half of the year, up from RM523,000 last year.
The strong jump in house prices in the past six months in some parts of the Klang Valley and Penang have raised concerns that unchecked speculative buying may cause overheating and result in a property bubble.
Bank Negara is keeping a close watch on the market and is engaging with banks on possible measures to curb excessive speculation on properties. It may consider imposing a 80% loan-to-value ratio (LVR) cap for mortgages to avert the risk of a potential property bubble.
The news have caused concern among industry and consumer groups over its dampening effect on affordability level and buying sentiment.
They worry that if the loan limit is brought down to 80%, many first-time house buyers, including those who have just joined the work force and the lower income group, may not be able to fork out the 20% downpayment for a house.
Their contention is that the proposed mortgage loan limit should not be imposed across the board and should give due consideration and flexibility to first-time buyers and those buying lower priced units priced below RM500,000.
Bank sources said Bank Negara’s aim of imposing the 80% mortgage loan cap was to reign in on speculative buying by certain quarters and the measure would be targeted at the high-end and non-owner occupied houses.
A blanket LVR cap will unlikely be imposed given the differing level of speculation in the various housing segments.
Given that houses of less than RM500,000 still constitute the bulk of transactions, accounting for 94% of the total number of units sold and 68% of sales value last year, the mass housing market may be spared. First-time house buyers may also be exempted from the proposed measure.
Should the proposed LVR cap materialise, houses priced from RM500,000 may be affected the most.
The mortgage loans market is now quite liberalised as the central bank does not impose any standard policy on mortgage loans but leaves it to the banks to manage.
Most banks have traditionally provided loans of up to 90% of the value of the property until about two years ago when market sentiment was impacted by the global financial crisis.
To stem the weak property sales, developers and their panel of bankers came out with different variants of housing loan packages that allow buyers to sign up for a house with just a 5% downpayment of the property value. Some even go as far as doing away with any downpayment and eligible buyers are granted the maximum 100% loan.
Although it has been almost two years since the introduction of these easy financing facilities to raise the affordability level for house buyers, these packages are still around in various forms today.
In fact, banks are still flushed with liquidity and are competing to get a bigger slice of the mortgage loan market. The stiff competition among banks has resulted in a mortgage price war with lending rates dropping to as low as base lending rate minus 2.3%.
But things have changed substantially in the past six months or so, and it should be time to review these housing packages.
If house buyers are made to pay higher downpayments for their purchases, the risk of their loans turning bad will be lower compared with if they have paid lower or zero downpayments.
We must not forget that the massive sub-prime housing debts in the United States that turned bad had triggered the global financial crisis two years ago and the world is still paying a heavy price for it today.
Although the LVR cap could dampen property market, demand for quality products in prime locations is expected to remain strong although buyers will be more selective.
Ultimately, if the proposed mortgage cap succeeds in cooling off the rapid rise in prices, especially for landed upper medium to high end residences, it should ensure a more sustainable and resilient property market.
Wednesday, September 1, 2010
Awas; Treacherous September ahead for stocks
Monday August 30, 2010
NEW YORK: Beaten-up investors go into September, historically a weak month for stocks, facing key reports on jobs, manufacturing and services. If those disappoint, the S&P 500 could breach technical support levels, pushing stocks yet lower.
The S&P 500 index has fallen nearly 13% since April as investors fret about the chance of a double-dip recession. But the index has found solid support around the 1,040 level, with a sustained move below that proving tough.
Federal Reserve chairman Ben Bernanke boosted stocks on Friday by signalling the Fed is ready to act if the economy worsens.
But more weakness in upcoming indicators like non-farm payrolls and Institute for Supply Management surveys would intensify fears the economy is sliding back into recession.
“There is this continual trend toward numbers falling short of expectations,” said Nick Kalivas, equity analyst at MF Global in Chicago. “My guess is you’ll see some selling come in again next week on these numbers.”
The non-farm payroll report on Friday is expected to show 99,000 jobs were lost in August, swollen by redundancies among temporary census workers, while private sector hires grew by only 42,000.
Both the manufacturing and services sectors are expected to have experienced another slowdown in growth in August. The ISM manufacturing report is released on Wednesday, followed by the services sector report on Friday.
The S&P 500 tested the 1,040 level twice during the week, both times ending the day with gains.
The level has consistently attracted buyers over the past 10 months and was significantly breached only once during a brief stint in July.
“Here we are sitting at this important support level, having pulled back 8% (on an intraday basis) in three weeks, you potentially set up for a reversal,” said Richard Ross, global technical strategist at Auerbach Grayson in New York.
The benchmark Standard & Poor’s 500 index finished last week at 1,064 on Friday. If the 1,040 level is breached, the S&P 500 could fall into a lower range around 1,020 to 1,010.
However, the index runs into resistance at its 14-day moving average at 1,076.65, providing only limited scope on the upside.
Investor sentiment remains negative. In the options market, investors bought S&P 500 puts, giving them the right to sell S&P futures at a fixed price, although the most actively traded option on the S&P 500 ETF was the US$107 call, suggesting some bullish trades ahead of next week.
“Overall investor sentiment in the option market has become very skeptical, with put buying widely exceeding call purchases,” said Ryan Detrick, technical senior analyst at Schaeffer’s Investment Research in Cincinnati.
The put-to-call ratio, a measure of investor sentiment, was at 0.61 as of Thursday’s close compared with a 21-day ratio of 0.59.
Investors will be closely following comments from executives at big industrial companies like General Electric and Boeing at Morgan Stanley’s Global Industrials Unplugged Conference this week.
Intel Corp cut its third-quarter revenue estimates in a surprise on Friday.
Although investors shook off the news after an initial fall, bleak outlooks from large corporation at the heart of the economy could rattle investors.
As usual there will be a series of secondary labor market data playing second fiddle ahead of the Friday’s jobs number.
ADP’s jobs report on Wednesday is expected to show the private sector added 18,000 jobs in August, down from 42,000 in July.
Weekly claims for jobless benefits are tipped to remain solidly elevated on Thursday, edging up to 475,000 against 473,000 the week before.
With significant risks on the horizon, many investors may think twice about getting into the market at the start of September, historically the worst performing month for all three major indices.
That may be especially true given the three-day break the following week when US markets shut to observe Labour Day on Sept 6.
Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St Louis, said he found it hard to envision a rally in the current environment.
“Right now the market is locked into short-term thinking,” he said. — Reuters
NEW YORK: Beaten-up investors go into September, historically a weak month for stocks, facing key reports on jobs, manufacturing and services. If those disappoint, the S&P 500 could breach technical support levels, pushing stocks yet lower.
The S&P 500 index has fallen nearly 13% since April as investors fret about the chance of a double-dip recession. But the index has found solid support around the 1,040 level, with a sustained move below that proving tough.
Federal Reserve chairman Ben Bernanke boosted stocks on Friday by signalling the Fed is ready to act if the economy worsens.
But more weakness in upcoming indicators like non-farm payrolls and Institute for Supply Management surveys would intensify fears the economy is sliding back into recession.
“There is this continual trend toward numbers falling short of expectations,” said Nick Kalivas, equity analyst at MF Global in Chicago. “My guess is you’ll see some selling come in again next week on these numbers.”
The non-farm payroll report on Friday is expected to show 99,000 jobs were lost in August, swollen by redundancies among temporary census workers, while private sector hires grew by only 42,000.
Both the manufacturing and services sectors are expected to have experienced another slowdown in growth in August. The ISM manufacturing report is released on Wednesday, followed by the services sector report on Friday.
The S&P 500 tested the 1,040 level twice during the week, both times ending the day with gains.
The level has consistently attracted buyers over the past 10 months and was significantly breached only once during a brief stint in July.
“Here we are sitting at this important support level, having pulled back 8% (on an intraday basis) in three weeks, you potentially set up for a reversal,” said Richard Ross, global technical strategist at Auerbach Grayson in New York.
The benchmark Standard & Poor’s 500 index finished last week at 1,064 on Friday. If the 1,040 level is breached, the S&P 500 could fall into a lower range around 1,020 to 1,010.
However, the index runs into resistance at its 14-day moving average at 1,076.65, providing only limited scope on the upside.
Investor sentiment remains negative. In the options market, investors bought S&P 500 puts, giving them the right to sell S&P futures at a fixed price, although the most actively traded option on the S&P 500 ETF was the US$107 call, suggesting some bullish trades ahead of next week.
“Overall investor sentiment in the option market has become very skeptical, with put buying widely exceeding call purchases,” said Ryan Detrick, technical senior analyst at Schaeffer’s Investment Research in Cincinnati.
The put-to-call ratio, a measure of investor sentiment, was at 0.61 as of Thursday’s close compared with a 21-day ratio of 0.59.
Investors will be closely following comments from executives at big industrial companies like General Electric and Boeing at Morgan Stanley’s Global Industrials Unplugged Conference this week.
Intel Corp cut its third-quarter revenue estimates in a surprise on Friday.
Although investors shook off the news after an initial fall, bleak outlooks from large corporation at the heart of the economy could rattle investors.
As usual there will be a series of secondary labor market data playing second fiddle ahead of the Friday’s jobs number.
ADP’s jobs report on Wednesday is expected to show the private sector added 18,000 jobs in August, down from 42,000 in July.
Weekly claims for jobless benefits are tipped to remain solidly elevated on Thursday, edging up to 475,000 against 473,000 the week before.
With significant risks on the horizon, many investors may think twice about getting into the market at the start of September, historically the worst performing month for all three major indices.
That may be especially true given the three-day break the following week when US markets shut to observe Labour Day on Sept 6.
Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St Louis, said he found it hard to envision a rally in the current environment.
“Right now the market is locked into short-term thinking,” he said. — Reuters
Thursday, August 26, 2010
The Hindenburg Omen IS Scary, but So Are the Fundamentals
Posted Aug 25, 2010 01:37pm EDT by Aaron Task in Investing
Related: ^DJI, ^GSPC, XLF, FXE, XHB, TLT, GLD
Another down day on Wall Street Thursday sent the Dow below 10,000 for the first time since early July. Fear in the market is being expressed by the continued rally in Treasuries and widespread chatter about an ominous sounding technical indicator: The Hindenburg Omen.
The Hindenburg Omen has a roughly 25% accuracy rate in predicting big market upheaval since 1987, meaning it's far from infallible but isn't inconsequential either. The indicator's creator, mathematician Jim Miekka, compares the Hindenburg Omen to a funnel cloud that precedes a tornado in a recent interview with The WSJ. "It doesn't mean [the market's] going to crash, but it's a high probability," he said.
Complex and esoteric even in the world of technical indicators, the Hindenburg Omen is triggered when the following occurs, Zero Hedge reports:
-- The daily number of NYSE new 52-week highs and the daily number of new 52-week lows must both be greater than 2.2% of total NYSE issues traded that day.
-- The NYSE's 10-week moving average is rising.
-- The McClellan Oscillator (a technical measure of "overbought" vs. "oversold" conditions) is negative on that same day.
-- New 52-week highs cannot be more than twice the new 52-week lows. This condition is absolutely mandatory.
These criteria have been hit twice since Aug. 12, prompting Miekka to get out of the market entirely, The WSJ reports. Judging by the recent market action, many others are following suit -- or at least moving in the same direction.
Worry List Lengthens
As Henry and I discuss in the accompanying clip, there are a lot of reasons to be worried right now that having nothing to with The Hindenburg Omen, the "Death Cross", Mercury being in retrograde or myriad other indicators cited by market pundits of various stripes.
More fundamental reasons to be concerned include:
It's the Economy, Stupid: This week's weak durable goods and home sales reports are just the latest in a string of desultory data. In sum, the macroeconomic data strongly suggest the job market isn't going to improve anytime soon. And if the job market doesn't improve, there's really not much hope for a turnaround in housing, consumer sales or anything else really. Oh, and the stock market is still expensive on a cyclically adjusted P/E basis, making it more vulnerable to an economic slowdown.
Unusual Uncertainty: On July 21, Fed chairman Ben Bernanke testified on Capitol Hill that the Fed's forecast called for real GDP growth of 3%-3.5% for 2010 and 3.5%-4.5% in 2011 and 2012. Less than a month later, the Fed announced plans to buy Treasuries again (a.k.a. "QE2") and, as The WSJ reported this week, there's a tremendous amount of dissention within the Fed about the 'right' policy prescription.
Financial Follies: Whether it's renewed concerns about Europe's sovereign debt crisis, more U.S. bank closures or reports of commercial developers walking away from properties, it's clear the problems in the financial system were not resolved by various and sundry bailouts and government stimulus ... not by a long shot.
Good Politics vs. Good Economics: S&P's downgrade of Ireland's debt and Greece's revenue shortfall show the short-term perils of the austerity measures that have swept Europe. But promising to cut government spending and slash deficits appears to be a winning political strategy in America right now. Certainly, it's a key message of Republican and Tea Party candidates, who appear to have the momentum heading into the November mid-term elections. But if Europe's 'PIIGS' are any example, gridlock might not be so "good" for the economy this time around, much less the financial markets.
Of course, the "good" news here is that there's so much to worry about and the markets typically are darkest just before dawn.
Related: ^DJI, ^GSPC, XLF, FXE, XHB, TLT, GLD
Another down day on Wall Street Thursday sent the Dow below 10,000 for the first time since early July. Fear in the market is being expressed by the continued rally in Treasuries and widespread chatter about an ominous sounding technical indicator: The Hindenburg Omen.
The Hindenburg Omen has a roughly 25% accuracy rate in predicting big market upheaval since 1987, meaning it's far from infallible but isn't inconsequential either. The indicator's creator, mathematician Jim Miekka, compares the Hindenburg Omen to a funnel cloud that precedes a tornado in a recent interview with The WSJ. "It doesn't mean [the market's] going to crash, but it's a high probability," he said.
Complex and esoteric even in the world of technical indicators, the Hindenburg Omen is triggered when the following occurs, Zero Hedge reports:
-- The daily number of NYSE new 52-week highs and the daily number of new 52-week lows must both be greater than 2.2% of total NYSE issues traded that day.
-- The NYSE's 10-week moving average is rising.
-- The McClellan Oscillator (a technical measure of "overbought" vs. "oversold" conditions) is negative on that same day.
-- New 52-week highs cannot be more than twice the new 52-week lows. This condition is absolutely mandatory.
These criteria have been hit twice since Aug. 12, prompting Miekka to get out of the market entirely, The WSJ reports. Judging by the recent market action, many others are following suit -- or at least moving in the same direction.
Worry List Lengthens
As Henry and I discuss in the accompanying clip, there are a lot of reasons to be worried right now that having nothing to with The Hindenburg Omen, the "Death Cross", Mercury being in retrograde or myriad other indicators cited by market pundits of various stripes.
More fundamental reasons to be concerned include:
It's the Economy, Stupid: This week's weak durable goods and home sales reports are just the latest in a string of desultory data. In sum, the macroeconomic data strongly suggest the job market isn't going to improve anytime soon. And if the job market doesn't improve, there's really not much hope for a turnaround in housing, consumer sales or anything else really. Oh, and the stock market is still expensive on a cyclically adjusted P/E basis, making it more vulnerable to an economic slowdown.
Unusual Uncertainty: On July 21, Fed chairman Ben Bernanke testified on Capitol Hill that the Fed's forecast called for real GDP growth of 3%-3.5% for 2010 and 3.5%-4.5% in 2011 and 2012. Less than a month later, the Fed announced plans to buy Treasuries again (a.k.a. "QE2") and, as The WSJ reported this week, there's a tremendous amount of dissention within the Fed about the 'right' policy prescription.
Financial Follies: Whether it's renewed concerns about Europe's sovereign debt crisis, more U.S. bank closures or reports of commercial developers walking away from properties, it's clear the problems in the financial system were not resolved by various and sundry bailouts and government stimulus ... not by a long shot.
Good Politics vs. Good Economics: S&P's downgrade of Ireland's debt and Greece's revenue shortfall show the short-term perils of the austerity measures that have swept Europe. But promising to cut government spending and slash deficits appears to be a winning political strategy in America right now. Certainly, it's a key message of Republican and Tea Party candidates, who appear to have the momentum heading into the November mid-term elections. But if Europe's 'PIIGS' are any example, gridlock might not be so "good" for the economy this time around, much less the financial markets.
Of course, the "good" news here is that there's so much to worry about and the markets typically are darkest just before dawn.
Sunday, May 23, 2010
MARKET CORRECTION - MAY 2010
NEW YORK (AP) -- Maybe the dumb money isn't so dumb after all.
Individual investors always seem to jump into stock rallies when they should be getting out. But after two crashes in 10 years, the little guy decided to stay on the sidelines this past year -- and played the fool again. Stocks just kept going up and up.
Well, at least until this month.
The professionals who have been pushing shares higher for 14 months discovered during the past few weeks something Main Streeters caught on to a while ago: Stocks are dangerous.
"They were always thinking stocks were going to go back down again," Mark Luschini, chief market strategist at Janney Montgomery Scott, says of individual investors. "The scar from investment declines hasn't gone away,"
Though markets rallied Friday, most major stock indexes are down now about 10 percent from their late April peaks. Such reversals, called "corrections," are common during a bull market, and many analysts believe this market was long due for one.
Still, investors -- professionals as well as individuals -- are unnerved. One measure of market jitters is the VIX, a market indicator commonly referred to as the fear index, which tracks expectations of big swings in stocks. From late April, the index has nearly tripled to levels not seen in over a year.
The change in market sentiment has come fast.
Last month, the question on everyone's lips was whether Corporate America would post earnings that showed the economy was indeed gaining strength. Then the numbers came in, and they were impressive. Instead of just slashing costs to generate profits, companies actually sold more, too.
In other words, that great engine of the growth, the American shopper, was back. The recovery was assured.
Then came fears early this month that Greece's debt troubles could spread, perhaps slowing or even halting growth throughout the world. Stocks began to pull back. On May 6, there was the so-called "flash" crash, sending the Dow Jones industrial average down to a loss of nearly 1,000 points in less than 30 minutes.
Last week served up more unsettling developments: a financial reform bill in Congress that could crimp bank profits, the sinking of the once surging euro and fears that a $1 trillion bailout of Greece might not stop it from defaulting.
On Friday, the Dow closed at 10,193, up 1.3 percent for the day but down 9 percent from its late April peak.
Some market observers say the fact that professional investors have been selling recently is less worrisome than their doing so indiscriminately.
Bill Fleckenstein, a Seattle hedge fund manager, says that in big selloffs, it's individual stocks or sectors that lead markets lower. But now everything seems to fall in unison, suggesting that investors are uneasy about owning any stocks.
"What we've seen in recent days in something different than anything I've seen in 30 years," he says.
Bob Doll, chief investment officer at the money management firm BlackRock Inc., echoes that view.
"I think a lot of people are selling now and asking questions later," he says. Adds Daniel Alpert, managing partner of Westwood Capital LLC, "Now everybody is reconfiguring their portfolios, trying to get defensive."
Not surprisingly, some professional investors think the wholesale selling is overdone.
David Marcus, CEO of Evermore Global Advisors in Summit, N.J., says he's using the market drop to buy a little. "We like to go where there's panic, because in the midst of the crisis you get the best opportunities."
If the past is any guide, individual investors might not join him anytime soon.
Investors pulled $25 billion out of stock mutual funds after the market bottomed last year, according to the Investment Company Institute, a mutual fund industry trade group. Meanwhile, they stuffed bank accounts with cash and loaded up with bonds. Last year saw $376 billion flow into bond funds.
If there's more turmoil in stocks, though, the individuals playing it safe may not escape completely unscathed.
Money manager Richard Bernstein, a former Merrill Lynch strategist, notes that some of the bonds that individuals have loaded up on are junk bonds, dicey ones issued by companies with iffy prospects. If stocks fall, there's a good chance junk will lose money, too.
"They got greedy," says Bernstein of the little guys.
Tobias Levkovich, chief U.S. equity strategist at Citigroup, thinks they'll get greedy for stocks soon, too. He notes that some individual investors had finally started putting money back into stocks before the recent drop, and he thinks they won't be able to resist if the market resumes its climb.
"They tend to chase the market," he says. "If it rallies, they'll come back in."
AP Business Writers David Pitt in Des Moines, Iowa, and Stevenson Jacobs in New York contributed to this report.
Individual investors always seem to jump into stock rallies when they should be getting out. But after two crashes in 10 years, the little guy decided to stay on the sidelines this past year -- and played the fool again. Stocks just kept going up and up.
Well, at least until this month.
The professionals who have been pushing shares higher for 14 months discovered during the past few weeks something Main Streeters caught on to a while ago: Stocks are dangerous.
"They were always thinking stocks were going to go back down again," Mark Luschini, chief market strategist at Janney Montgomery Scott, says of individual investors. "The scar from investment declines hasn't gone away,"
Though markets rallied Friday, most major stock indexes are down now about 10 percent from their late April peaks. Such reversals, called "corrections," are common during a bull market, and many analysts believe this market was long due for one.
Still, investors -- professionals as well as individuals -- are unnerved. One measure of market jitters is the VIX, a market indicator commonly referred to as the fear index, which tracks expectations of big swings in stocks. From late April, the index has nearly tripled to levels not seen in over a year.
The change in market sentiment has come fast.
Last month, the question on everyone's lips was whether Corporate America would post earnings that showed the economy was indeed gaining strength. Then the numbers came in, and they were impressive. Instead of just slashing costs to generate profits, companies actually sold more, too.
In other words, that great engine of the growth, the American shopper, was back. The recovery was assured.
Then came fears early this month that Greece's debt troubles could spread, perhaps slowing or even halting growth throughout the world. Stocks began to pull back. On May 6, there was the so-called "flash" crash, sending the Dow Jones industrial average down to a loss of nearly 1,000 points in less than 30 minutes.
Last week served up more unsettling developments: a financial reform bill in Congress that could crimp bank profits, the sinking of the once surging euro and fears that a $1 trillion bailout of Greece might not stop it from defaulting.
On Friday, the Dow closed at 10,193, up 1.3 percent for the day but down 9 percent from its late April peak.
Some market observers say the fact that professional investors have been selling recently is less worrisome than their doing so indiscriminately.
Bill Fleckenstein, a Seattle hedge fund manager, says that in big selloffs, it's individual stocks or sectors that lead markets lower. But now everything seems to fall in unison, suggesting that investors are uneasy about owning any stocks.
"What we've seen in recent days in something different than anything I've seen in 30 years," he says.
Bob Doll, chief investment officer at the money management firm BlackRock Inc., echoes that view.
"I think a lot of people are selling now and asking questions later," he says. Adds Daniel Alpert, managing partner of Westwood Capital LLC, "Now everybody is reconfiguring their portfolios, trying to get defensive."
Not surprisingly, some professional investors think the wholesale selling is overdone.
David Marcus, CEO of Evermore Global Advisors in Summit, N.J., says he's using the market drop to buy a little. "We like to go where there's panic, because in the midst of the crisis you get the best opportunities."
If the past is any guide, individual investors might not join him anytime soon.
Investors pulled $25 billion out of stock mutual funds after the market bottomed last year, according to the Investment Company Institute, a mutual fund industry trade group. Meanwhile, they stuffed bank accounts with cash and loaded up with bonds. Last year saw $376 billion flow into bond funds.
If there's more turmoil in stocks, though, the individuals playing it safe may not escape completely unscathed.
Money manager Richard Bernstein, a former Merrill Lynch strategist, notes that some of the bonds that individuals have loaded up on are junk bonds, dicey ones issued by companies with iffy prospects. If stocks fall, there's a good chance junk will lose money, too.
"They got greedy," says Bernstein of the little guys.
Tobias Levkovich, chief U.S. equity strategist at Citigroup, thinks they'll get greedy for stocks soon, too. He notes that some individual investors had finally started putting money back into stocks before the recent drop, and he thinks they won't be able to resist if the market resumes its climb.
"They tend to chase the market," he says. "If it rallies, they'll come back in."
AP Business Writers David Pitt in Des Moines, Iowa, and Stevenson Jacobs in New York contributed to this report.
Tuesday, April 20, 2010
Spot a bubble
"Watch the lenders, not the borrowers - borrowers will always be willing to take a great deal for themselves. It is up to the lenders to show restraint. When they lose it, watch out" pg 83 TGTE
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