Market recap: Stocks posted back-to-back rallies, with the Dow pushing past 13,000, after...


Market recap: Stocks posted back-to-back rallies, with the Dow pushing past 13,000, after reports that ECB chief Mario Draghi would hold talks with the Bundesbank's Jens Weidmann. Earnings have been mixed at best, but bullishness on European progress has overwhelmed them. Crude oil climbed again; 10-year Treasury yields bounced to 1.55%. NYSE winners led losers three to one.
Comments (29)
  • WMARKW
    , contributor
    Comments (10787) | Send Message
     
    "Irrational Exuberance"
    27 Jul 2012, 05:04 PM Reply Like
  • Matthew Davis
    , contributor
    Comments (4746) | Send Message
     
    Oh, they are talking...again...for another fruitless result. No where to go but down from here, I see 10,500 dow in the near future, that's what my crystal ball tells me
    28 Jul 2012, 01:40 AM Reply Like
  • bbro
    , contributor
    Comments (11219) | Send Message
     
    That was 1997...when the S&P 500 was trading 22 times earnings...
    27 Jul 2012, 05:27 PM Reply Like
  • into dark shadows
    , contributor
    Comments (460) | Send Message
     
    22 times?
    Money market funds were paying you 6 % and we had this little singularity called the internet that would forever change things!

     

    I agree with WMARKW,
    I say there is no way we get QE whatever next week with this kind of parabolic run on this total he said she said crap!

     

    I think Bubble Blowin Ben should slap the wall street journal and Hilsenwrath in particular on the wrists and admonish the So Called Leak earlier in the week.
    This is not what instills confidence,(totally lacking today) from the QE stun gun of Bubble Blowin Ben himself!

     

    The market is topping if it didn't top today!
    The risk is paramount to the downside and Bernanke will not waste whatever that last bullet he MAY have in reserve!

     

    QE is the threat that will kill the consumer if it comes to pass!
    Oil at $120 a barrel?
    $8 / 10 gasoline going into the election?
    Bernanke is sidelined, if he has an ounce of brains left!
    27 Jul 2012, 05:45 PM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    Market watchers keep ignoring the most important variable, to their own peril. The vast over-allocation of capital away from equities and into Treasuries, gold, cash and every other perceived "safe" investment has set up a situation where there are not many willing sellers left in the equity markets and a vast ocean of potential buyers. Markets have been totally unable to gather any downside momentum or volume because of this reality, and even slight buying finds a paucity of willing sellers, sending shares briskly upward.

     

    If there's risk of big market moves, the last two days should send a message as to in what direction that risk lies. Given recent history, it will probably be overlooked.

     

    P.S. No QE coming.
    27 Jul 2012, 05:56 PM Reply Like
  • RSI Raistlin
    , contributor
    Comments (474) | Send Message
     
    I'm betting with my wallet....shortest lived stint over 13k yet.

     

    Seems crazy to me Bernanke won't even start a QE if the markets are stable. Well they seem to be stable but the reason they are stable is because they think Bernanke will start a new QE.....but Bernanke won't start a new QE if the markets are stable.......etc.
    27 Jul 2012, 08:07 PM Reply Like
  • paratus2
    , contributor
    Comments (6) | Send Message
     
    Question RE: the above comment from Tack: It stated that capital is overallocated away from Stocks. If this is actually the case, wouldn't the lack of buyers of stocks before the last two days -- have lead to lower stock prices -- rather than the current prices that are approaching all-time highs (in spite of the weak underlying global fundamentals ever)? And what about the effect of "artificial" stimulus in the past 4 years?
    27 Jul 2012, 08:26 PM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    para:

     

    No, you have it backwards. When the money has already moved away (not is waiting to move away), there are fewer sellers remaining and many more potential buyers. What we've seen in the last week, not just two days, is classic confirmation of this phenomenon.

     

    On the "scary news" down days, the markets opened lower, but couldn't generate any volume or momentum for downward moves, and, in fact, rose during the day, again on low volumes. the reason for this is that, on a relative basis, there are just not that many sellers, as against a much larger universe of potential buyers. It doesn't take much change of mind by even some of those buyers to overcome the weak selling.

     

    Then, we get a couple days of perceived (not important whether it's real or not) good news, and what do we see? We see the same reluctance to sell, but now many more buyers appear, forcing prices to leap upward to pry necessary shares away.

     

    The disposition of capital, presently, makes the upside volatility risk far greater than the downside. It's not to say it's impossible to decline; it's just that it must occur against strong resistance.

     

    The previous stimulus has no bearing on current market response. And, in fact, we've had no QE for over a year, so it's been a non-factor in both the economy and the markets. My own opinion is that we will not see any further QE, despite myriad rumors to the contrary.
    27 Jul 2012, 08:56 PM Reply Like
  • Van Hyder
    , contributor
    Comments (172) | Send Message
     
    And Tack hasn't mentioned it but you have to keep in mind that a LOT of companies took the opportunity over the past 3 years to reduce their float. So when you say there aren't buyers until the last couple of days you're not paying attention to the largest buyers of stock, the company's own management.
    27 Jul 2012, 10:11 PM Reply Like
  • azblackbird
    , contributor
    Comments (358) | Send Message
     
    >>>When the money has already moved away (not is waiting to move away), there are fewer sellers remaining and many more potential buyers. What we've seen in the last week, not just two days, is classic confirmation of this phenomenon.<<<

     

    So who are all these buyers? And at what point do they become sellers? Word on the street is that all the retail (mom and pop) investors are sitting on the sidelines. So who are the buyers?
    27 Jul 2012, 09:11 PM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    az:

     

    In my opinion, you're overanalyzing it. The reality is that there's so much more capital available from any and all sources to buy shares than willing sellers remaining, who are anxious to sell, that who they are, specifically, isn't important. It's the aggregate numbers which dictate.

     

    The buyers probably represent a cross section of buyer types. I don't see any likelihood that most of new buyers become sellers any time soon because those who are willing to venture in at this point are the more intrepid buyers, who won't be so easily spooked.

     

    Of course, the mom-and-pop types usually show up late in the game, explaining why their relative results are so unimpressive and elevated exposure to genuine risks, when they do enter, so profound.
    27 Jul 2012, 09:29 PM Reply Like
  • azblackbird
    , contributor
    Comments (358) | Send Message
     
    >>>Of course, the mom-and-pop types usually show up late in the game, explaining why their relative results are so unimpressive and elevated exposure to genuine risks, when they do enter, so profound.<<<

     

    Seems to me that it's the mom and pops who are the "smart money" these days, and got out on the last major run up, and are now on the sidelines. By my calculations and from the street talk, it's the banks and large hedge funds who are losing their asses, thus the constant crying and whining for more QE so they can at least show a small year end profit when it's all said and done.

     

    I don't hear mom and pop crying for more QE... do you?
    27 Jul 2012, 09:43 PM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    az:

     

    A nice piece of fiction, perhaps. On the contrary, many M&P's got blown out of their portfolios in late 2008 and early 2009 and have never had the courage to dip their toes back in the water. Consequently, they've missed the entire rally, and many are not only financially impaired from these disastrous decisions, they are bitter and angry, which further damages their objectivity in making good decisions, going forward.
    27 Jul 2012, 10:06 PM Reply Like
  • paratus2
    , contributor
    Comments (6) | Send Message
     
    Thanks for the ongoing explanations. I need to work my retirement account more actively and wiser, and am keen to understand this. At its essence, the imbalance you are describing sounds to me like too much capital bidding for a relatively lower number of shares, at any given time. A few follow on questions about macro influences, please:

     

    a- Wouldn't more precise metrics such as PE ratios or % dividend yields help keep the effects of supply and demand fluctuations in share price in check?
    b- In the next 6 months, what macro influences do you see that could cause the sentiment to shift away from buying and toward selling?
    c- Don't record low (artificially low...) interest rates qualify as a type of ongoing stimulus to stock prices? If so, what happens if or when market forces cause interest rates to get "real" and start rising?
    27 Jul 2012, 10:39 PM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    para:

     

    To comment briefly on the issues you raise:

     

    a) I am not sure I understand the nature of this question. Are you asking if P/E's and/or yields should temper buying and/or selling?

     

    b) Within the time frame you specify, I could see, as possible deleterious influences on the market, declining economic activity, higher taxation, election results, unknown surprises. That said, I don't expect a shift toward selling, in fact, unless the tax cuts are not extended; I expect a stronger shift toward buying. One of the factors that I anticipate to some into play will be an improvement in European economic numbers, which will arrive unexpectedly to many. This will be occasioned by the gradual reduction in the value of the euro. I also expect housing and construction to continue to improve.

     

    c) One would think, superficially, that low interest rates would be stimulative to commerce and to share prices. But, in fact, market apprehensions have seen most money remain in perceived safe havens (which aren't safe at all) or be directed more to corporate bonds than to equities. As for the economy, ultra-low rates have a paradoxical effect of lowering monetary velocity because many borrowers get conditioned to wait for even lower rates, so they postpone large purchases, and lenders are reluctant to make multi-year loans at record-low rates, so credit becomes constrained. That's why we see so much cash piled up in banks and only various balance sheets. If rates were to begin to rise, we'd see an increase in monetary velocity.
    28 Jul 2012, 12:39 AM Reply Like
  • azblackbird
    , contributor
    Comments (358) | Send Message
     
    >>>If rates were to begin to rise, we'd see an increase in monetary velocity.<<<

     

    Correct me if I'm wrong (I'm new at all this) but wouldn't economic theory dictate that increasing the cost to borrow money, in effect... slow the velocity of said money. Isn't too much money velocity the cause of inflation?
    28 Jul 2012, 01:30 AM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    az:

     

    You're 100% correct, but only at much higher relative interest-rate curves. At ultra-low rates, especially when they've been in a falling mode for an extended time, anomalous behavior sets in. On the demand side, borrowers wait for yet-lower rates and sense no urgency to act, and on the lender side, supply dries up because spreads are too low.

     

    There's an interest-rate "sweet spot" for matching borrowing demand with lending supply, which is higher than current rate levels. And, in what might seem paradoxical, lending demand actually rises, as rates rise, until that sweet spot is reached, after which higher rates suppress demand, even if supply is abundant.
    28 Jul 2012, 07:15 AM Reply Like
  • azblackbird
    , contributor
    Comments (358) | Send Message
     
    >>>There's an interest-rate "sweet spot" for matching borrowing demand with lending supply, which is higher than current rate levels. And, in what might seem paradoxical, lending demand actually rises, as rates rise, until that sweet spot is reached, after which higher rates suppress demand, even if supply is abundant.<<<

     

    No matter what the "sweet spot" is... what if nobody wants to borrow? Worse yet... what if nobody wants to lend? Then what happens?

     

    You know what's funny. I have no debts and a substantial line of credit available. My bank (WF) is trying to penalize me by charging monthly fees (they call it an inactivity fee) because I'm not using my credit line. I finally caved and borrowed a few $$ just to wipe out the fees. My "personal" banker let in me on a little secret on how to avoid ALL account fees. He set me up with a program that constantly moves my money around different accounts each month, thereby showing consistent deposits and withdrawals. So I guess in their little banker minds, this is what they would call "money velocity". Funny thing is, none of that money is making it into the general economy. As a business owner, I just don't need anything right now, and am doing fine with what I have (business wise) until I have a clue as to what direction our economy is heading.
    28 Jul 2012, 05:40 PM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    az:

     

    You are simply not representative of the norm. But, if you wish to believe so, I won't attempt to disabuse you of the notion. On a macro level, things works very differently than your individual case.
    28 Jul 2012, 07:20 PM Reply Like
  • azblackbird
    , contributor
    Comments (358) | Send Message
     
    >>>You are simply not representative of the norm.<<<

     

    So what is the norm?
    28 Jul 2012, 08:39 PM Reply Like
  • birdmaestro
    , contributor
    Comments (128) | Send Message
     
    Short covering. And all paths lead back to GS. This is the most manipulated stock market I have seen in over 30 years of investing and trading. Love it.
    28 Jul 2012, 12:20 AM Reply Like
  • paratus2
    , contributor
    Comments (6) | Send Message
     
    Tack:
    Thank you. I'm glad you mentioned paradox, because the more comments I read, the more anxious I get. First a bit of background: I'm looking for medium to longer term investments (months or years), not to trade every day or every few days. At age 57, I can't afford to lose principal again, and I also do not want to lose purchasing power of the modest but above average amount I have saved due to erosion from (real, underreported) inflation.
    Before I started reading this string of comments (which are still much appreciated), in 30 years, I had never felt more sure that I understood where stocks are generally headed. And, that seemed to me to be down.
    Regarding my previous question (a), I'll ask a different way, at a micro level on a dividend paying stock example.
    At any given time, if there are more buyers for a stock than sellers, that would naturally seem to cause the price to rise. However, if those buyers also paid attention to dividend rate (whose % return -- other factors kept equal - would go down as the share price went up), wouldn't this soon lower the number of buyers for that stock until the price went down? If not, doesn't this lead to yet another bubble?
    Now, another big picture question about paradox: Overall stock prices have returned to near record highs, but even with superficial improvements in Europe the last few days, the fundamentals (govt. debt, artificially low dividend yields on savings, lack of growth, underfunded liabilities, municipal bankruptcies, commodities brokerage houses going broke, etc. etc.) to me look and feel like a perfect storm approaching. Do you believe the resolution of these problems are already priced into the market, and the fundamentals are going to get better?
    28 Jul 2012, 07:44 AM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    para:

     

    There's a lot to chew on there, maybe more than I can address in the following brief comments, but I'll offer what I can.

     

    First, I don't think you should "bet" on markets rising or falling in the short term. It's always impossible to make that judgment accurately, so one must look beyond that to what is likely to occur over time. I see two factors, which strongly favor a rise in nominal (note that I say nominal, not "real") share prices: 1) the large increases in money supply, even if not moving briskly now, are latent inflation, so everything will eventually inflate: revenues, profits, and share prices, as they are only a proxy for other economic values, measured in nominal terms; 2) the vast amounts of money now allocated to poorly (below inflation) yielding investments will not stay there. It is there out of fear. Fear always dissipates, as issues are resolved, and issues are always resolved because life goes on, as it must, and global population and the demand that creates is ever expanding. All recessions are, by necessity, short-term events. So, in my judgment, the longer-term investor has a positive landscape.

     

    In terms of asset allocation, and considering your age, I'd consider a mix of approximately 50% common, 25% preferred shares, and 25% debt. This mix can be attained either by holding individual issues or carefully-selected ETF's. There's no reason that you cannot attain yields well above inflation from corporate debt and preferreds that have adequate safety. That doesn't mean that investments will be volatility free, an impossible goal, but that those holdings will constantly keep producing, even if share prices fluctuate from time to time. The common component can be balanced both for present yield (I always like yield with any holding) and future prospects for growth. Overall, I have found that slow and steady wins the race, more than grasping for gains in the latest "go-go" investment.

     

    My own strategy is to find undervalued, out-of-favor sectors and overweight my holdings in these areas. The fact that prices are suppressed just makes the yields offered that much more attractive. The secret is picking issues where the yield will be maintained or increased. Then, over time, as the unloved sectors rebound, prices rise, causing yields to drop, as you suggest. then, I take profits and roll those dollars into new candidates from whatever the new "dog" (i.e., unloved") sectors may be. Also, within sectors, I generally choose a spread of companies, rather than concentrating on trying to pick one or two winners, making my investment a true sector play. Lastly, an inviolate rule: never, ever more than 5% in a single stock, usually 2-3%. This prevents unforeseen catastrophes. For what it's worth, presently, I like real estate, energy and financials, as well as select European plays.

     

    As to you last apprehensions, I can only say that I've heard the refrain for many decades, now, that this or that spells doom, but the fact is that things always have a way of getting worked out. perhaps, it isn't obvious, or doesn't happen without angst or volatility, but betting on a bitter end is always a loser's bet. The answer is to make a reasonably-balanced portfolio and not get caught up in the daily frenzy. If one can sustain that discipline, it pays off over time.

     

    Hope this helps.
    28 Jul 2012, 08:12 AM Reply Like
  • paratus2
    , contributor
    Comments (6) | Send Message
     
    Tack: A follow on question, pls: I've been averaging into a position in HDGE, which is actively managed bear fund that shorts specific stocks that meet their criteria. My thinking has been this: if the overall market is likely headed down, then a short position in a basket of weak stocks would help protect, even grow the value of my account. Could you take a look and comment on this concept, in the context of the macro imbalance of buyers and sellers in your original post? Thanks.
    28 Jul 2012, 07:55 AM Reply Like
  • Tack
    , contributor
    Comments (16281) | Send Message
     
    para:

     

    I am a yield-oriented value investor. I constantly look for underpricing, not overpricing, and, as a matter of course, I don't not attempt to short, buy puts or make downside hedge plays that are based on being short. To me, short positions are timing plays for traders, trying to guess short-term market direction, and that's not what I do. If markets decline, I keep reaping my handsome dividend yields, and I buy more shares at depressed prices, providing even better value.

     

    The only attempts I make at managing market allocations are based on looking at interest rates and capital dispositions, as I have mentioned previously. If I sense a market that is overbought, i.e., with capital overweighted to equities, opposite of now, then, I will shift some of my allocations away from common equities and more toward preferred shares and debt issues. But, this is something I do subtly, not in vast all-or-nothing moves. Moderation rules the day.

     

    I continue to believe that both due to present capital allocation away from equities, plus the high level of monetary expansion that's occurred, we will see all economic measures have an upside bias, as measured in nominal terms. And, it's vital to remember that all investors can only attempt to maximize nominal values; they have no control over inflation. I see nominal values of everything advancing higher in the coming years. Being short is against this trend.
    28 Jul 2012, 04:57 PM Reply Like
  • kaputorwon
    , contributor
    Comments (3) | Send Message
     
    I see another round of Wall Street layoffs coming!
    28 Jul 2012, 01:59 PM Reply Like
  • Matthew Davis
    , contributor
    Comments (4746) | Send Message
     
    What is funny to me, is that it appears that Hollande is going to make a power grab and intimidate Merkel into a new round of stimulus spending that will leave the EU weaker. When Draghi comes out and says "by any means necessary", that means spending folks, that doesn't mean austerity.

     

    We have already witnessed a major chunk of the EU citizenry reject austerity in France. The Greeks will get a bailout, and it will continue indefinitely through the political will of France, and France will bend Germany's arm to fund more stimulus to all the PIIGS.

     

    The market exuberance of this week is ill conceived, as it means exactly the opposite of what the lemmings think it means. Did this guy give us any specifics on how it is he is going to salvage the Eurozone? I have not seen anything beyond the fact that he said something like he will save the world.

     

    Bloodbath coming, as the US economy has become a lagging indicator to world recession. The EU has become the leading indicator, because so much of our business is located off shore, look at China manufacturing (everything is made in China), and India textiles as well as consumer spending. Those are all linked. And it looks bad, as consumer sentiment fades. I am selling into rallies and waiting.

     

    2011 summer recession fears were dead wrong, in the face of very good earnings by business in general, this season however, its a stark contrast, earnings are falling even AAPL, and a recession is looming with 1.5% GDP, if that is even accurate, still falls within the margin of error for one. Which means we could or could not be in a recession, unless an independent analyst crunches to numbers to affirm or dispute them. We all know the government will skew them to keep us in positive territory.
    28 Jul 2012, 02:10 PM Reply Like
  • Andres Rueda
    , contributor
    Comments (185) | Send Message
     
    10-year T bonds remain at a miniscule 1.54% yield, having moved this week 16 basis points from a head-scratching, absurdly low 1.38%. 1.54% is however not yet sustainable. The fear trade still has plenty of room to unwind. Only this week, we continued to see negative yields in Swiss government bonds, which are just the result of dumb, fearful people doing dumb things. There's simply too much money trapped in inflation-adjusted or even nominally negatively yielding bonds that will now rush into equities and other so-called "risky" assets. The central banks will now roast the shorts, and there will be plenty of short covering in the coming days. Many "risky" equities moved up 10%-20% on Friday, which is just wild. Never bet against the guys with the bigger gun. We're at the early legs of an equities rally (which will feed on itself for a few weeks), in my humble opinion.
    28 Jul 2012, 04:28 PM Reply Like
  • Matthew Davis
    , contributor
    Comments (4746) | Send Message
     
    This is sad, you just ignored all the warning flags waving in your face. What about the earnings reports last week, they sucked, and were hit and miss. Bonds are being bought for a reason, because the rally was based on lip service of a politician!

     

    Did you buy into this fake rally? Or are you just hoping against hope that the jobless claims next week top 90,000?
    28 Jul 2012, 10:30 PM Reply Like
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