Weekly Market Recap: What Year Is This, Anyway?

Includes: DIA, QQQ, SPY
by: Graham Summers

From now on, I will be detailing each week’s most salient developments in the financial markets via a bullet point rundown on Friday. My hope is that you can skim through this info before leaving the office or checking out for the weekend. Today we are bombarded with information from a hundred different sources. I’m hoping you’ll find this weekly recap to be a one-stop shop to distinguish the most important items from the “noise.”

What Year Is This (2007 vs 2009)?

  • Insider selling to buying ratios are the most bearish (MOST selling) since Autumn 2007 (think these guys believe the bull market myth?)
  • Corporate debt issuance is at Autumn 2007 levels (companies are raising as much funds as they can from the misguided optimism).
  • Investor Intelligence’s survey shows 51% of investors are bulls and 19% bears (again, Autumn 2007 levels).

Stocks Are Cheap?

  • S&P 500 is trading at a REAL P/E of 130 based on earnings that include write-downs.
  • Typically a 50% rally in stocks occurs two years into recovery from a recession. At that point 1 million jobs have been created, GDP has increased substantially, as have incomes.
  • Stocks are pricing in a 4-5% GDP growth next year and 40-50% jump in earnings (what are the odds of this happening?)
  • 70% of volume on the NYSE comes from computer trading programs. This week, five stocks (AIG, Fannie, Freddie, CIT Group, and CitiGroup) ALONE accounted for 40% of volume.

Asia Will Save the World Economy?

  • Japan just posted record unemployment for July.
  • China’s banks have lent out money equal to 30% of its GDP. This has funneled into commodities (pig farmers speculating in gold) and stocks (Shanghai Index is up over 60% this year!)
  • Recent reports show that China might actually NOT be buying Treasuries but exchanging their Mortgage Backed Securities and Agency Securities (Fannie/ Freddie/ etc) for Treasuries. This explains why the Treasury market is going strong despite the fact everyone is annoyed at the Fed’s profligate spending.
  • China’s GDP numbers are almost assuredly phony (industrial production is down, as is electrical generation).