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Wow -- another week where the numbers do not do justice to the volatility. Most indices actually gained for the week, though it sure as hell didn't feel that way.
After going negative on the year, the Russell 2000 popped 4.4%. REITs were close on the Russell's tail, grabbing a 3.8% gain. The
was up 1.4%, while the
added 1.3%. The
was the index laggard, tacking on a mere 0.4%. U.S. corporate bonds, emerging-market paper, and the U.S. dollar were all slightly to the green side.
The losers? Well, crude oil got whacked for 5.3%, while emerging-market stocks gave up 3.4%. European stocks were also in the red 2.5%. So too did global stocks get schmeissed for 1%. Gold, Treasuries and investment-grade bonds were all slightly down.
"The Market's worst fear is summed up by James Melcher, who runs Balestra Capital. "The equity market is just a sideshow to the main event, which is the bursting of the credit-market bubble," he says. A decade of muted borrowing costs and lax credit have created a vast pool of liquidity that has inflated home prices and reduced sensitivity to risk. Liquidity has flooded so much of the financial system that mopping up its excesses will take time, "and we're not there yet," Melcher says. Because money managers cannot accurately gauge the value of mortgage securities on their books, the losses suffered have yet to be fully quantified, and selling assets to meet redemption calls can play out for some time. That's one reason gold prices have slipped 3% even during the flight to safety over the past three weeks, and why energy bulls nonetheless are selling oil stocks -- because that's where they have profits."
Hmmm, that's something to chew on.
Well, at least I have a slew of positive articles queued up for tomorrow. Loosen up your mousing wrist, and get ready to roll -- Its' clobberin' time!
Investing and Trading¿ Central Banks React to Liquidity Crisis: Central banks around the world have been injecting funds into markets in response to an undesired and unwelcome spike in short-term rates suggested that demand for reserves was outstripping supply. The Wall Street Journal's Real Time Economics runs down the totals. ¿ Subprime Nonsense: The Fed chairman and Treasury secretary say the subprime mess has been contained. Are they joking? The Treasury secretary and chairman of the Federal Reserve play important symbolic roles as knowledgeable guardians of the global financial system. Yet sometimes it's scary how little they seem to know. Speaking in China last week, Treasury Secretary Henry Paulson reminded journalists that "in today's world, it's quite easy to stay close to the markets, and it's my job to be vigilant and stay close to the markets." In a June speech, Federal Reserve Chairman Ben Bernanke assured listeners that "we will follow developments in the subprime market closely." ( Slate)
See also Bernanke Was Wrong: Subprime Contagion Is Spreading. ¿ We can always count on Barron's Alan Abelson to lay blame precisely where it belongs: At the feet of the maestro, Sir Alan Greenspan. (If no Barron's subscription, go here) ¿ Is there a more imperfect messenger claiming the credit situation is just fine than Bear Stearns (BSC) ? Even moreabsurd, on the same day this foolish WSJ op-ed came out, we learned Bear Stearns was liquidating their bankrupt hedge funds in the Cayman Islands -- instead of New York, in order to limit creditors'/investors' ability to get their money back. How pathetic. l called it The "Chutzpah" of Bear Stearns. ¿ Amidst all of the mortgage based turmoil this week, the homebuilders caught a bounce. Why? Perhaps this magazine cover had somethingto do with it: Bonfire of the Builders¿ Behind the Stock Market's Zigzag: The stock market in the past few days has looked like it has gone haywire. Shares that would have been expected to fall have risen, and shares that might be considered safe have taken big hits. During Thursday's rout, for example, Beazer Homes USA (BZH) - Get Beazer Homes USA, Inc. Report and Hovnanian Enterprises (HOV) - Get Hovnanian Enterprises, Inc. Class A Report -- two homebuilders beaten up by the housing downturn -- each rose more than 10%. Other stocks that have long been targets of short-sellers, who profit when stocks fall, rose. Behind the bizarre behavior: quantitative hedge funds. These funds rely on computer models to pick which stocks to bet on and which to bet against. They've been liquidating positions to raise cash. They sold stocks they liked, forcing prices lower. For the stocks they sold short, the opposite occurred; to exit from those positions, they were forced to buy. ( The Wall Street Journal)
See also Market's Flaws Surface¿ How the Bubble Started: Nobel Laurelate Joseph Stiglitz writes:"The pessimists who have long forecasted that America's economy was infor trouble are coming into their own. Of course, there is no glee inseeing stock prices tumble as a result of soaring mortgage defaults.But it was largely predictable, as are the likely consequences for boththe millions of Americans who will be facing financial distress and theglobal economy." ¿ What do Luxury Goods and Internet Stock have in common? Luxury-goods companies are starting to look like Internet stocks did in the 1990s, if only because indexes designed to track them are proliferating. At least six have come out this year, according to data compiled by Bloomberg. ¿ Can buying a $5,000 watch save you $7 million dollars?¿ What's up with gold? A triple-digit down day on financial system fears, but gold gaps down, too. What gives? ( MarketWatch) ¿ Wikis are proliferating. The most recent one I came across relates to our favorite subject: WikiInvest¿ From the people who brought you the Mortgage Lender Implode-o-Meter, comes this new site: The Hedge Fund Implode-o-meterEconomy
The Wall of worry continues to build.¿ Run, don't walk to read the WSJ page one article on How Credit Got So Easy And Why It's Tightening. (If no WSJ subscription, go here: A Short History of the Credit Boom & Bust) ¿ In a coordinated effort, central banks got into their choppers and dispensed lots of cash into the banking system: Time to Warm Up The Helicopters? (Be sure to see the video.) ¿ U.S. Import Prices Gained 1.5% in July on Energy Costs: The era of imported disinflation may have come to an end for the U.S. import prices swelled for a fifth-straight month in July on higher energy prices and another record increase in the prices of products from China, suggesting the U.S. can no longer count on cheap overseas goods to offset domestic price pressures. ( The Wall Street Journal) ¿ Lost amongst the tumult was this tidbit: The Unemployment Rate is actually closer to 5.4% than 4.6%: A Closer Look at July NFP.
Housing¿ Who can't get a mortgage now: Buyers with good credit and a down payment will make out well -- all others, prepare to pay ( CNN Money). ¿ Notice to Loan Officers/Brokers: A letter from the home office to brokers provides a glimmer of insight into what is going on in the mortgage-lending industry. ¿ U.S. agency rejects Fannie Mae's request for larger loan portfolio:The Office of Federal Housing Enterprise Oversight said late Friday itwould not allow Fannie Maeundefined to increase its portfolio beyond the$727 billion limit created in May 2006, despite arguments by thecompany and senior Democrats that a change would provide much-neededstability to the shaky mortgage market. The agency's announcement comesafter a tense week of public posturing in Washington. Several majormortgage companies have complained about difficulty selling loans toinvestors, and Fannie Mae said it could pump liquidity into this area. ( Marketwatch) ¿ Mortgage Brokers: The Salesman Factor: In the next five years, 1.4 million Americans will see theirmortgage payments more than double. Already, half a million homeownersare 90 days behind on their payments. Foreclosure rates are up 30percent from 2006. How did so many end up in trouble? Was itconsumer overreaching or a bull market in bad advice? Many consumeradvocates and legislators believe that the latter played a big role --and are blaming mortgage brokers, the independent agents who in thepast few years have sold nearly 70 percent of the nation's home loans. ( CNN Money)
Technology and Science¿ Judge Says Unix Copyrights Rightfully Belong to Novell (NOVL) ¿ Google News Offers Rebuttal Time¿ The what the heck? story of the week: President Bush was treated for Lyme disease last August, the White House announced Wednesday after failing to disclose the problem for nearly a year. ¿ 5 Virgin America In-Flight Gadgets That Should Be on Every Flight¿ Farewell to the Yangtze River Dolphin¿ Where do the candidates stand on major issues? This handy chart explains all. (flickr)
Music, Books, Movies, TV Fun!¿ Two movies worth checking out: ¿ Giant Hot Dog Busted by Chicago Cops.
-- Inside Man is a taut thriller with a terrific cast. It is, quite simply, the best movie Spike Lee has ever made. -- Thank You For Smoking is a wrly sardonic look at today's "culture of spin." I found it quite amusing.
Looks like we have a spectacular weekend in store. Get the sunscreen out, were taking the boat to the Great South Bay. See you at
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Barry Ritholtz is the chief market strategist for Ritholtz Research, an independent institutional research firm, specializing in the analysis of macroeconomic trends and the capital markets. The firm's variant perspectives are applied to the fixed income, equity and commodity markets, both domestically and internationally. Other areas of research coverage also include consumer, real estate, geopolitics, technology and digital media. Ritholtz is also president of Ritholtz Capital Partners (RCP), a New York based hedge fund. RCP is driven by the analysis performed by Ritholtz Research. Ritholtz appreciates your feedback;
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