Economic/Market Highlights 10/17
By Larry Doyle on October 18, 2008 at 7:25 AM in Current Affairs, Economy
Well, another 400 point swing in the Dow Friday but, as I have cautioned you before, please do not get caught up in the day-to-day or hour-to-hour volatility. Let’s take a look at the market over the course of the last two weeks.
| Dow close: | 10/3 10,325 | 10/10 8,451 | 10/17 8,852 |
| Nasdaq | 10/3 1,947 | 10/10 1,649 | 10/17 1,711 |
| S&P 500 | 10/3 1,099 | 10/10 899 | 10/17 940 |
| 10yr Tsy | 10/3 3.60 | 10/10 3.85 | 10/17 3.92 |
At Friday’s market high, these indices had retraced about 50% of the month’s overall range and then closed weakly. In short, there are still obviously many positions that are long the market at higher levels but we may have established some short positions below the market.
These shorts provide support to the market in the short term. If I had to go out on a limb, I would venture that we are going to try to establish a trading range of 7500 to 9500 between now and year end.
Other news of note in Friday’s market action includes:
–Warren Buffett writes an editorial in the NY Times indicating that he is buying the market at these levels believing that for the long term these valuations are attractive. He does offer that he is not a market timer per se and that his call does not mean that the market can’t go lower from here prior to forming a base and moving higher.
–Lehman Brothers CEO Richard Fuld is subpoenaed regarding the failing of that firm. Not unlike the indictment and conviction of Michael Milken, the Feds like to string some people up when this much money is lost and firms go down.
–The big question for the market is not 3rd quarter earnings which will be coming out over the next few weeks but projections for 4th quarter and beyond. Listen to what the companies have to say as they announce earnings.
ECONOMIC DATA
–Housing starts were released for September and were down 6.3% to a 17yr low. If you recall, the country had a significant real estate contraction in the late 80s and early 90s which precipitated many thrifts and S&Ls to fail. This contraction makes that period look like a day at the beach.
COMPANY NEWS
–ING Group out of the Netherlands, one of the largest insurers in the world, trades down 27% on the day with strong speculation that they will need to raise capital. Questions surrounding the valuations of their mortgage holdings. This firm has an online bank, ING Direct that has gotten very large. if you are a depositor you may want to check that your accounts are properly titled and within FDIC limits of 250k per account holder.
–Google has a good day moving 5% higher. Highlighted by strong expense control. Despite the move higher Friday, be mindful that it is still 50% off its all time high. Google does have a very strong franchise.
–Citigroup moved down another 6% on the day. I will say that some of the stronger banks debt looks attractive. The bank sector as a whole is going to have a tough time doing better given the outlook for the consumer and likely increase in commercial loan defaults.
–Seeing more and more selling by senior management of why a merger between GM and Chrysler makes sense. When management is out “making the case” on the airwaves they are trying to get ahead of what will be a tough PR problem given the massive layoffs that will occur. This deal is not one that either firm probably wants to do but has to do. A GM plant in Moraine, OH announced that it was being closed. Expected layoffs of 1500 workers. OUCH!!
INTEREST RATES
–just slightly lower on the day but as you can see from above interest rates have backed up app .45 (45 BASIS POINTS) in the 10yr in the last two weeks.
–3 mo LIBOR (London Interbank Overnight Rate..the rate used by banks to lend to one another) did move down to 4.42% vs 4.5% yesterday and 4.8% at the beginning of the week. In a “normal” stress free market Libor would typically be only .1 to .2 above the Fed Funds rate which is now 1.5%. Given that this rate is app 3.0% above that rate it does indicate how fearful banks are to lend to one another. That said, it has started to move down just a touch which is a hint that credit is loosening up a LITTLE. POLITICAL
–the states of Michigan, Indiana, New York, Ohio, and South Carolina have all indicated that they have less than 3 months worth of “unemployment benefits” available. This is clearly a problem with expectations that unemployment will be moving up. These states will have to raise funds and it will be costly.
–the economic turmoil that we are experiencing is truly global.
The European Union is proposing a global summit. Iceland is bankrupt. Russia is reeling especially given that oil is down 50% from levels seen this summer. We are having issues but there is no greater country in the world!
Have a nice weekend!!
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