Commentaries

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Dow hits 10K

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OK, it’s finally happened so hopefully talking heads can stop obssessing about this magic number. Traders in the more esoteric spaces, like non-agency mortgage bonds, are even feeling the love. We get another round of bank earnings tomorrow, including Goldman Sachs, which if they’re anything like JP Morgan, could ignite even more euphoria in markets.

Still, the Dow needs to close above 10K for everyone to truly feel like the good times are finally here to stay. While it pierced 10K, it’s since bounced lower.

I’m still not sure I buy that any of this really matters in the grand scheme of things since it’s all coming due to the artificial support of government money. Free markets indeed.  That said, it’s sure to bolster confidence and if the U.S. economy is lucky, that will be enough to keep things on stable footing. Then again, there’s that thing called the dollar that also hit another 14-month low again today.

For those who love historical stats, here’s some from S&P’s Howard Silverblatt.

Automatic debt-to-equity swap?

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That’s what Fed Governor Daniel Tarullo seems to be advocating in his speech, which you can find here.

Here’s the graph, emphasis mine:

We must also adopt new regulatory mechanisms to counteract the systemic and too-big-to-fail problems that became so embedded in our financial system. One possible approach is a special charge–possibly a special capital requirement–that would be calibrated to the systemic importance of a firm. Needless to say, developing a metric for such a requirement is a new, and not altogether straightforward, exercise. Another proposal, which strikes me as having particular promise, is that large financial institutions be required to have specified forms of “contingent capital.” One form of this proposal would have firms regularly issue special debt instruments that would convert to equity during times of financial stress. If well devised, such instruments would not only provide an increased capital buffer at the moment when it is most needed. They would also inject an additional element of market discipline into large financial firms, since the price of those instruments would reflect market perceptions of the stability of the firm.

Gold’s run impressively up

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All the goldbug fever, not withstanding today’s pullback in the yellow metal’s price, got me thinking about just how well has gold stacked up against say stocks and oil over the longer term. I picked 2004 as a starting point for no other reason than it gives enough distance from the mania of the credit bubble and the distortion of its popping.

Gold’s trajectory is pretty impressive. Now whether you think that means it’s bubble that never fully burst or whether it’s indicating a longer term trend in which enough investors want a hedge against inflation further down the line is another matter. But, since 2004, it’s been mostly up.

That didn’t take long…

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Turn the calendar to September and markets are fixated about potential problems at the banks again. The obsession with September being a bad month for stocks and for the world in general has nothing to do with it, I’m sure.

I’m certainly the last person to downplay the still tough road ahead given the state of the U.S. consumer, commercial real estate and the excesses that still need to be wrung out of the system, but the fickle trading, especially in the stock market this summer, has made it difficult to read too much into the daily moves.

Trash is king as Lehman shares surge

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It’s either a sign of sheer boredom on Wall Street, or an early celebration of the one-year anniversary of Lehman Brothers’ demise, but shares of the fallen invesment bank were red hot today.

The stock rose some 200%. Take that AIG.

For some inexplicable reason, shares of the bankrupt investment bank, which trade on the loosely regulated over-the-counter Pink Sheets, changed hands some 73 million times on Friday. That’s a lot of trading in a stock that’s been worthless for nearly 12 months.

It’s a long way from 950 for the S&P 500

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It’s hard to believe that little over a month ago, investors were holding their breath to see if the S&P 500 had enough momentum to burst through 950 – a psychological level that had held firm since November of last year. Carry through buying Monday from last week’s renewed cheer that the U.S. and global economies were leaving recession behind has pushed the S&P 500 to 1033, its highest level since Oct. 6, 2008 when it traded at 1056.89.

But as I noted here last week, markets continue to be pretty fickle when it comes to betting on recovery vs. continuing slump.

S&P 500 takes a round trip

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After all the handwringing earlier this week about the consumer and the global economy, it looks like the S&P 500 is back to exactly where it started, more or less, a week ago.

But don’t get too comfortable. U.S. markets are still following the volatile Chinese stocks and the current optimism on the U.S. economy – thanks Philadelphia Fed – can quickly turn sour with the next data point showing consumers are still feeling blue.

Don’t be fooled by global stock stumble

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Don’t blame global stock markets for being skittish. It is August, after all, a month that has spelled trouble in the past two years.

Recall that, a year ago, Fannie Mae and Freddie Mac started wobbling at the precipice while AIG, desperate for cash, began paying junk-like yields in the corporate bond market. A month later, all hell broke loose.

Easy does it on the exuberance

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If it keeps going like this, Ben Bernanke will have to give an irrational exuberance speech.

Today, stocks jumped to fresh multi-month highs and Treasury yields climbed after a report on July manufacturing activity made investors feel even more optimistic about the future. Sure, manufacturing is still contracting, but that’s only a minor detail for those convinced that a burgeoning economic recovery is the real deal.

Stock market bulldozes the bears

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Yowza is the word that comes to mind when looking at the major stock gauges. The DJIA has burst through 9,000 and the S&P 500, up 2.2%, at 975. Reuters is chalking it up to strong second quarter earnings and a pop in existing home sales. The pace of the rally in recent weeks, however, is starting to send signals that this may be overdone.

David Rosenberg, chief economist over at Gluskin Sheff, notes that that the pop so far in the second quarter is pricing in unrealistic economic growth.

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