No Fireworks

The S&P 500 hit the new high for the year yesterday, but it didn’t sparked interest from the mainstream media. The market looks as it is looking for clues in which direction to move. Its similar like in June/July, everything was pointing to move lower but all went in the other direction on “better than expected” earnings. Earnings season is months away and I’m feeling tempted to start a short position.

Chart 1. S&P 500

S&P 500 09092009

News about US residential mortgages continue to occupy my interests.  US foreclosure fillings reached 358k last month, up 18% from the year earlier. No doubt that we have had some recovery on the demand side in recent months, but I would probably attribute large part of that to the US government tax credit and seasonal effects. Also, banks are modifying loans, so this is postponing large part of the pain for years to come. Most important form the Blomberg story is that the large part of the foreclosure is caused by the unemployment.  Bloomberg link: U.S. Foreclosure Filings Top 300,000 for Sixth Straight Mont. This raises questions about health of US banking systems. At some time all those losses have to find way to bank earnings despite all the accounting changes. If you look at the Wells Fargo, in example, the company has 14.3% of 1-4 Family First Liens loan portfolio 30+ days delinquent according to FDIC data. In the same time they have 6.5% of total loan portfolio 30+ days delinquent. And they claim (as I wrote in earlier posts) that they don’t need to raise new capital because they earn to much and don’t want to dilute existing shareholders. Bloomberg link: Wells Fargo to Repay TARP ‘Shortly’ as Losses Ease. That doesn’t look as a healthy bank to me.

In the same time monetary measures M1, M2 and MZM are falling in last few weeks, nothing alarming jet, but I hope this is not connected with banks refinancing loans and recording income in the PL statements, but no cash coming to the CF statements.

Gold rally eased a bit and at the moment I’m writing this post gold futures are trading near 992 USD/oz. Today looks like the rally will pause a bit or even correct. Following Barrick Gold news yesterday, other two majors in gold production – AngloGold Ashanti  and Randgold Resources  are feeling bullish. They are buying properties in unstable or ever war thorn African countries. Bloomberg story: AngloGold Risks Congo Jungle, Mining’s Last Frontier.

The story on commodities over the last period was dollar weakens and possible inflation caused by debt monetization. It is interesting that precious metals, industrial metals and oil are rising on that despite bleach supply/demand balances and soft commodities are flat, almost at the lows to which they fell as recession started. Strange. A bull story in the making…maybe.

In China, rhetoric on shifting a gear down was an upset for the markets and economy,  so returning to the full throttle mode looks like the only possibility.  Bloomberg story: Wen Says China ‘Cannot’ Yet Pull Back on Stimulus. On the other side we have some pessimistic guys there. Bloomberg story: Bank of China’s Zhu Sees ‘Bubbles’ in Asset Markets.

Looking at the Shanghai Composite looks like its loosing steam, again, despite new highs for the developed Asian markets. A negative surprise today on Japan July machinery orders, down 9.3% month on month, another sign of (temporary) weakness in China as China is growing to biggest Japan’s trading partner.

Chart 2. Shanghai Composite

Shanhgai Composite 10092009

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This entry was posted on Thursday, September 10th, 2009 at 7:53 am and is filed under Markets. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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