Archive for September 27th, 2012
“Not Counted” Does Not Mean “Not There”
Thursday, September 27th, 2012
Via Mark J. Grant, author of Out of the Box,
“Our inventions are wont to be pretty toys, which distract our attention from serious things. They are but improved means to an unimproved end. We are in great haste to construct a magnetic telegraph from Maine to Texas; but Maine and Texas, it may be, have nothing important to communicate.”
-Thoreau
I suppose one could reach this conclusion living in solitary bliss in the middle of the woods but the supposition or perhaps conclusion does not seem to be the way of things in the real world. There is always something to communicate, always a novel tale to be told and, these days, with the advent of virtually instant communication it is not the “shot heard ‘round the world” but the word or photo that may prompt action with mere seconds from its transmission to its reception. We are now living in an instantaneous world where action and then reaction is divided by the nanoseconds once only spoken of by physicists and the mathematically inclined.
Riots in Madrid or Athens are on our screens with an immediacy that could hardly be imagined just a scant ten years ago and the change to the way we make investments decisions and the skills and adroitness now necessary to keep your portfolios in-line with a world that has gone “live” is a new dynamic for those of us that have been on the Street for some years. When I began on Wall Street the ticker tape was still in existence, just barely but it was still there, and the gentleman of Wall Street began their day with the Wall Street Journal so that we could find out what happened overnight in America and the rest of the world. These are days gone, long gone, and different strategies must be employed as a result.
I write specifically this morning to those of you that presently occupy positions that I used occupy myself. You cannot be in a meeting and out of touch, out of contact any longer. You must devise some system that in the case of emergency that you can be found and the likelihood of events that could cause you to scramble is increased by two factors; the immediacy of news and the necessity of reacting to it. Real social unrest in Spain or Greece or the bombing of Iran or some black swan even that could massively move the markets are outliers no longer. You may not appreciate being disturbed in Board meetings or woken up in the middle of the night but if you are a senior decision maker you cannot afford to be tucked away in your solace any longer. The world is not just connected but now moves at a speed that could hardly be imagined when I arrived on Wall Street almost four decades ago and, like it or not, the winning of the Great Game now demands either being plugged-in or shut-out.
A Recent Announcement
Do not disregard or minimize the recent announcement by Germany, Finland and the Netherlands that was joined twenty-four hours later by Austria. The funding nations in Europe placed a line in the concrete when they rejected assisting legacy issues and loans. This group of nations vacated, in this one statement, all of the pleas and demands of the periphery countries that had lined up for aid and ever-more aid relying upon the pledges of the solidarity of Europe and they got an answer, a very Germanic answer which is not, I am quite sure, what they wanted to hear. The joint response was a “Nein” that threw the responsibility and the monetary contribution back to the individual sovereign nation so that it is just not “austerity” that will be demanded but the drain of the capital of a singular nation that lines up for help. It was quite clear, “your money first and then ours” which will increase and magnify the divide between the have and have-not countries on the Continent.
The announcement also nullifies, in part, the “save the world” tactic of Mario Draghi. The ECB will not move without EU approval he has said in setting the “condition” of any ECB action and it is now quite transparent that Germany and the rest will not be approving any ESM transferences until the nation asking for money has been bled dry and that Greece, Portugal, Ireland and perhaps Spain with their line of credit for their banks may not receive anything at all in the way of new loans. In the case of Spain, if the wall is hit, it will take all of the money in the current ESM to fund the country and any money for Italy, if it came to that, would have to come from an additional round of financing that I doubt is now politically possible in Europe.
The Rational Basis of my Skepticism
The ECB, as I quoted recently from their own published balance sheet, has $15 trillion in loans outstanding to Europe. They claim a $4 trillion balance sheet based upon not counting guaranteed loans by various nations and by not counting contingent liabilities. This is the same scheme that is used for calculating the debt to GDP ratios of the countries in Europe. The methodology is consistent. If a loan, a debt, is guaranteed by a nation or if the liability is “contingent;” it is not counted. This, of course, does not mean that possibility of having to fund or write-off something is not there; it just means it is not counted.
Furthermore all guaranteed loans or debts of any nation, including Greece, are deemed “risk-free” and so the balance sheet of not just the ECB but the banks in Europe are skewed, as in incorrect by American standards, by the methodology employed. What is the “Standard Operating Procedure” in Europe would be fraudulent in the United States and while you may think that everyone is entitled to their own manner of doing things it also must be said that the European invention allows for increased risks and leverage that could overcome the Continent at any point. “Not counted” does NOT mean “not there” and so the cause for my great concern.
European banks were supposed to be de-leveraging in accordance with the Basel III rules but have grown by 7% according to recent data released by Eurostat. Target2 was supposed to be shrinking but has grown to almost one trillion Dollars. The loans at the ECB have been increasing and whether the credit line to the Spanish banks or the loans to the banks of many countries in Europe to buy their debt at auction keeps on growing. The risk factor is magnified so far past any margin of safety that I am fearful, more than fearful, that some event, some relatively minor event in fact could throw Europe off a cliff that will make our fiscal cliff look like a gently rolling hill in comparison.
I repeat and repeat again:
“NOT COUNTED” DOES NOT MEAN “NOT THERE!”
Copyright © Mark Grant
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Stresses in China’s manufacturing sector point to further economic slowdown
Thursday, September 27th, 2012
by Sober Look
The latest Foxconn incident (see video below) is raising more questions about China’s manufacturing sector’s ability to grow. It is becoming difficult to see how China’s overall economy can expand at projected rates with such uncertainties around manufacturing.
WSJ: – The riot raises questions about the sustainability of China’s vaunted manufacturing machine. And it poses a challenge to the government that is struggling to satisfy the soaring expectations of a new generation of Chinese workers who came of age in an era of double-digit economic growth and are less willing than their parents to make personal sacrifices for their country…
We are now seeing clear signs of strain faced by China’s high tech factories as they attempt to squeeze more production out of their thin margins (discussed here) – and hitting bottlenecks in the process
FT: – [Foxconn] is the sole assembler for the iPhone 5 this year, with 80-85 per cent of shipments next year as well, according to analysts at Barclays. At an estimated $8 a phone, that workload brings in revenue, but has also put the company under strain. To handle Apple’s demands, Citi analysts estimate, Hon Hai must increase headcount at its Zhengzhou iPhone factory from 150,000 workers in June to 250,000 in October.
The relentless selloff in China’s domestic stock market is reflecting this uncertainty in manufacturing growth (as well as the renewed volatility in Europe). The Shanghai Composite Index hit a new multi-year low this morning.
The Shanghai Stock Exchange Composite Index (Bloomberg)
China’s official news has little on the incident in Taiyuan, but the authorities are clearly preparing the population for weaker growth ahead. As discussed about a year ago (see post), the impending slowdown will increase risks of social unrest and possibly additional production disruptions. That in turn will hurt confidence and investment, as the economy will become increasingly dependent on government stimulus.
China Daily: – China’s economic growth is likely to slow for its ninth consecutive quarter in the period from July to September, top policy advisers said on Tuesday.
If their predictions prove true, the government may find itself taking “remarkable measures” to combat the slump, they said.
Zheng Xinli, deputy head of the China Center for International Economic Exchanges, a government think tank, said China’s economic data for August has turned out worse than expected and the economy’s prospects remain gloomy. Amid those circumstances,the country’s GDP is unlikely to grow at a faster pace in the fourth quarter.
“The urgent need right now is to clarify what are the most effective ways to boost domestic demand,” Zheng said.
Source: Reuters
Copyright © Sober Look
The Predictive Power of Dividends (Smead)
Thursday, September 27th, 2012
by William Smead, Smead Capital Management
In an article published by Marketwatch.com on September 21, 2012, Mark Hulbert asks the question, “Where do you think the stock market will be ten years from now?” It was as a lead into the results of a predictive model from Rob Arnott, founder of Research Affiliates. His model argues that current dividend yields go a long way to predicting ten-year forward returns. Other than a big glitch in the 1990′s, it appears to have some value. The chart below represents the predictive model in comparison to the actual returns:
Hulbert explains the model this way: “The model, at least the variant I will focus on for this column, is breathtakingly simple. It says that the market’s long-term return will be a function of just two things: the current dividend yield and real growth in earnings and dividends.”
Rob Arnott concludes that the return from the S&P 500 Index will be 5.6 percent over the next ten years, based on those two factors. We at Smead Capital Management (SCM) are very respectful of long-term and mathematically sound analyses of equity returns. Hulbert and Arnott urge caution based on this view of the US stock market. He was even kind enough to bring out “all the usual suspects” to remind us of the coming profit margin mean reversion (GMO) and that academic studies show that low dividend levels don’t precede faster earnings growth.
For the purposes of a passive investor in the US stock market, it’s our opinion the only way to set expectations higher than the 5.6 percent return that Arnott’s model predicts would be to get higher growth in earnings and dividends. Arnott believes that only higher inflation would drive higher earnings and dividends. History shows that higher inflation causes PE ratio contraction, offsetting dividend increase benefits.
By now we hope you are dying to find out our take on all of this. First, we’d like to see how stocks do during ten-year stretches when dividend growth is the highest. We shared one year ago the information provided by Howard Silverblatt, the market historian from Standard & Poor’s (S&P). He pointed out that the payout ratio of S&P 500 companies was the lowest since 1936 during the last era when scared companies hoarded cash. He pointed out that over the last 50 years the payout ratio averaged 52.3 percent and over the tech-heavy last 20 years, it was 46 percent. We hypothesized that as the US economy heals and improves over the next 10 years and baby-boomer investors clamor for more income, that companies would respond by returning the payout ratio to more normal levels. We also believe that since our companies have above-average balance sheets, above-average free cash flow and wide moats that they would produce above-average dividend growth.
Second, we like to say that every day 3 million really smart people like Rob Arnott get up in the morning and try to predict the stock market based on mathematic and/or macroeconomic analysis. Rob and his firm are probably among the best, but the field is way too crowded for our taste. This kind of research has led institutional investors to drop from 36.7 percent of their portfolios in US stocks in 2002 to 15 percent one year ago. It has driven individuals into bond investments and bond funds which we feel has almost no mathematical possibility of beating Arnott’s 5.6 percent return. We also believe it has also led some of the most respected money managers to perform poorly the last three years, because they are overly defensive and much more market-timing sensitive because of these long-term forecasts. Stocks have a history of performing well when the vast majority of participants are highly under-invested.
Lastly, we have discussed the “profit margin mean reversion” argument in a prior missive. We believe that capital intensive businesses, those associated with commodity production and those which have built their future on uninterrupted economic growth from China and emerging markets, will see their profits margins plummet. On the other hand, those who buy commodities and sell brands could see significant margin improvement, in our opinion.
Therefore, here is our conclusion. Accept Arnott’s model if you are a passive US common stock investor, it beats the heck out of bond-market forward return potential. As stock pickers, avoid all capital intensive S&P 500 sectors and focus on companies with attributes which lead to superior dividend growth. Or you could just treat us as your equity “Greyhound” and leave the driving to us.
Best Wishes,
William Smead
The information contained in this missive represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results. It should not be assumed that investing in any securities mentioned above will or will not be profitable. A list of all recommendations made by Smead Capital Management within the past twelve month period is available upon request.
Copyright © Smead Capital Management
Tags: China, Commodities
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Dangerous Liaisons
Thursday, September 27th, 2012
by Jamie Hyndman, Mawer Investment Management
Last [last] Friday morning I was following my usual routine. On the drive into work between 6:30 and 7:00 am I listened to the Bloomberg business news on Sirius satellite radio. Then at 7:00 am sharp I switched over to a Canadian news station to find out what’s going on in our fair country. Finally, when I got into the office, I scanned the business headlines from a variety of daily emails I receive. While these various information channels normally fit together quite nicely, last Friday it was a comic disaster that laid bare the shortcomings of some business media.
I could wrap up this blog right now by saying that employment statistics are a lagging indicator and are therefore virtually useless. I could go one step further and say that monthly employment is such a short-term data point that it is completely useless. But that wouldn’t allow me the opportunity to share my story, which is as follows…
At 6:45 am Bloomberg reported the following: U.S. employers added 96,000 new jobs in August – fewer than forecast. Also negative was the fact that the unemployment rate dropped because more workers gave up trying to find a job.
At 7:00 am a Canadian broadcaster reported the following: U.S. employers added a healthy 96,000 jobs which drove the unemployment rate there down to 8.1%. In addition, Canadian employers created more jobs than expected at over 34,000.
At 7:10 am I went through an email from a Canadian brokerage firm and their analysis broke down the Canadian employment numbers into their component parts. It turns out that the 34,000 new jobs in Canada were formed by the creation of 46,000 part-time jobs and the loss of 12,000 full-time jobs – hardly a positive.
So the Canadian broadcaster got both the U.S. and Canadian analysis wrong. While I got a good chuckle out of this, it really is serious stuff. So much of what gets reported in the media is insignificant information. To compound the problem, much of it also gets incorrectly interpreted. When it comes to business media, caveat emptor. Be cautious, be critical or better yet, change the station.
Jamie Hyndman
Copyright © Mawer Investment Management
Tags: Canadian, Canadian Market
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David Rosenberg On The ‘One-Trick Pony Market’
Thursday, September 27th, 2012
Global economic fundamentals are awful, bearish divergences are occurring everywhere, investor sentiment is nearing bullish extremes, political risks remain high and last week’s market performance can be summed up in four words – ‘lack of follow through’. As Gluskin Sheff’s David Rosenberg explains, more than two-thirds of the rally points the stock market has enjoyed since the summer-time lows occurred around central bank policy announcements. So the market is really a one-trick pony here, breathing in the fumes of central bank liquidity.
David Rosenberg, Gluskin Sheff: BUMPY ROAD
What the stock market lacked last week can be boiled down to two words — follow through. It’s as if all the QE and then some got priced in the week before. Not even the ballyhooed introduction of the iPhone 5 managed to elicit much excitement. It was interesting to see the Dow fail to hold onto its early gains on Friday and close with a 17 point loss and to see the sector leaders narrow to a group of defensives like health care and telecom services_ The financials and materials segments were very soft and yet in the past these were the major beneficiaries of Quantitative Easing. For the week, the S&P500 dipped 0.4% — which was not supposed to happen. What was supposed to happen, as the elites told us, was that the lagging hedge funds were going to throw in the towel and chase this market. Everyone expects this to be a major source of buying power.
Alas, but at what price level?
At the same time, what if the bulls who lucked out this year because they hung onto Ben Bernanke’s arm decide to take profits or at the least lock in their gains? Or what if there is no progress made on the fiscal front and we go into year-end with the gnawing realization that top marginal capital gains tax rates will be heading back to 43.4% on January 1 from the current 15%? It may be a widely-held view but it is no slam dunk that we finish off 2012 with the double- digit returns — twice what is normal — that have been posted thus far (for more proof, have a look at Money Managers Take a Timeout From Stocks in today’s WSJ. And the best quote goes to “nothing the Fed has done has increased earnings expectations’).
Further on the political front, it shouldn’t be lost on those who are proponents of capitalism that President Obama now enjoys a 49% approval rating — it is up six points in the past year (and election handicappers should note that this is the exact same thing that George W. Bush had at this same juncture of the 2004 campaign — which he won handily against another gaffe-prone opponent).
Interestingly, prices are up impressively this year, but trading volumes are down around 20%. Yet another non-confirmation.
And its not as if the equity market has been rallying off news at it pertains to the fundamentals like the economic data and corporate earnings. Indeed, more than two-thirds of the rally points the stock market has enjoyed since the summer-time lows occurred around central bank policy announcements. So the market is really a one-trick pony here, breathing in the fumes of central bank liquidity.
The global economic fundamentals are awful. China’s industrial sector is in decline_ France’s PM I data is at a 41-month low, and while Germany did manage to pull off an upside surprise, the whole euro area now has its manufacturing sector behaving as though it is 2009 all over again_ Italy just sharply cut its economic growth forecast (and the stock market there was clocked for a 4% loss last week), shortly after the Japanese government downgraded its own assessment of the economy. Declines occurred in U.S. household employment, real wages, Industrial production and core retail sales. In other words, this is not QE1, when the recession was coming to an end. This is not QE2 or Operation Twist when the economy stopped looking as though it was going to do a “double dip-. No. this latest round of central bank manipulation is happening at a time when there is no sign of an imminent turnaround in the economy, and the weakness has gone viral. The real problems for investor risk appetite comes if we see signs that inflation is heading higher which will limit what the Fed can do, or if we see the economy falter which would then expose Bernanke as the non- wizard that Toto exposed behind the curtain and the Fed as pushing on a string.
Investor sentiment is not at a bullish extreme yet, but it’s getting there — at just over 54% bullish sentiment in the latest Investors Intelligence survey. The wedge between the bulls and bears is flirting with the 30-percentage-point spread that typically signals interim market tops.
Earnings expectations are far too optimistic and destined to come down. The consensus has operating EPS accelerating to a 13.4% growth rate in 2013 from 5.4% this year. But with margins at cycle high levels (9.4%, rivaling the 2006 record, just as the market was about to put in its last gasp to a new high) ;and 30% above long-run norms, it will be difficult to see EPS growth that strong absent a return to vigorous corporate pricing power. And with the P/E multiple for the overall market already back to the high end of the range for the past two years, what I see at best is a sideways moving market from here. Some pundits will use interest rates as an excuse, but the weekend WSJ provided some nifty insight showing that the market multiple historically was 12x when the 10-year real bond yield was negative (versus around 14x now).
I don’t know but a 12x multiple on a forward earnings stream that will likely be flat around $100 in the coming year doesn’t sound like a market that has a whole lot of upside from here (or until we get another announcement from a major central bank).
There are various non-confirming developments taking place, and Dow Theory advocates know exactly what I am talking about as the Dow Transports slumped 5,9% this past week, the largest decline since November of last year That this ultra-cyclically sensitive sector is down 2,2% for the year at a time when the S&P 500 is up 16% is one of the great anomalies for 2012.
The railroad stocks not only sagged 7% last week but were also the fourth worst performer in the IBD’s 197 industry group. This is a warning sign, make no mistake, underscored by the last week’s guidance cuts by both FedEx and Norfolk Southern,
As someone from Miller Tabak put it to the WSJ this weekend:
This is a major divergence that should not be ignored. It tells me the risks of being in the market at these levels is growing. The Transports are the first major index to reflect an underlying change in the market. The market is now saying ‘yes, the economy does matter’. You can’t close your eyes and buy everything anymore.
Pretty heady stuff.
China is another anomaly as its stock market suffered its steepest decline in nearly a year as the Shanghai index closed last week at its lowest price since 2/2/12. It is down 8% for the year, and this is likely important insofar of what it is pricing in for the world’s second largest economy. It’s more that just the islands dispute with Japan and the looming political transition – profits there are in a recession, having contracted 2.7% this year and the diffusion measures of industrial activity flashed an 11th month in a row of receding manufacturing sector.
And what about Europe. Yet another non-validation. The stock market there, with an 11x forward multiple, 20% below normal, is close to telling us that the recession is getting worse. Since Super Mario embarked on his newest bond buying program in September 6th, Spanish two-year bond yields – the benchmark for global risk trades – have jumped 40 basis points.
What makes QE3 different and maybe even less potent than its predecessors is that the trend in global economic activity is still down. In the prior QEs, activity was already reviving and actually this may have played a more significant role in stimulating investor ‘animal spirits’ than the actual liquidity boost. Let’s not also forget that earnings, both operating and reported, are now contracting sequentially. And the ISM is in a multi-month sub-50 pattern. This was not the case during these other QE episodes and serves up a greater hurdle for market performance this time around.
Tags: China, David Rosenberg, energy, Gluskin Sheff, Natural Gas, oil, Qe, Quantitative Easing, Rosenberg, Rosie
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Is a Gold Standard Possible?
Thursday, September 27th, 2012
From Deutsche Bank’s Daniel Brebner:
A Future Gold Standard?
A common theme in discussing the gold market is the prospect for a new gold standard in the future. That such a topic is now common says much about the change in attitudes by investors, many who would have ridiculed the mere mention of such a thing as little as five years ago. It also, perhaps, gives a hint as to the desperation of investors in their search for assets which they believe may protect their wealth over the long-term, a period which may experience more than its fair share of event risk.
If gold were to regain its crown as the primary medium of exchange it would dramatically change the way that governments manage their economies – which some would say is a good thing given the results of their management skills thus far. Nevertheless, the imposition of a gold standard would limit the ability of government to affect the supply of money in the economy. The supply of money would rest entirely with the volume of gold holdings that a country would possess and grow in line with its trade balances plus domestic gold production (depending on domestic resources and whether these resources in fact became state property – which we expect should be of consideration).
Why it can work
Many economists shudder at the notion of a gold standard; this is understandable given the school of thought to which most adhere: Keynesian or Keynesian derivative. Keynes saw flexible monetary policy as an important tool in optimising an economy. Gold ostensibly removes this flexibility – and was therefore derided as a ‘barbarous relic’ by Keynes himself. In fact we agree that during certain periods of extreme economic imbalance, such as the Great Depression, substantial monetary flexibility may be required.
Most economists see the great problem of gold as twofold: 1) there is insufficient supply and 2) there is insufficient supply growth.
The first argument is spurious. The volume of gold is not important; instead it is the value that is ascribed to this gold that is important. A zero can easily be added to a paper bill to change its value; similarly it can be added to the value of an ounce of gold. Absolute values are in fact unimportant. As we have already asserted, gold is infinitely divisible. Does it matter that a paper bill is backed by a gram or a kilogram of gold? Theoretically it shouldn’t matter in our view.
The second argument, in addition to being fallacious, shows a certain lack of humility. In order to achieve reasonable price stability within a growing economy money supply also needs to grow. The critical question is, how fast. The rate is important, grow the money supply too quickly and inflation results, too slowly and deflation is the consequence (assuming money velocity is constant in both situations).
We believe there are two key elements which are needed to approach an appropriate rate of money supply growth.
The first: population growth – as the number of users of money changes, a money supply adjustment is needed to prevent the distortions in pricing that this would create.
The second: unleveraged productivity – an estimate of the increase in per capita productivity (or value creation) that a society experiences over time – without the assistance of credit growth.
We start by using general metrics for economic activity. There are several, including GDP and trade figures. The difficulty however is stripping out the impact of significant credit growth on these figures to get the genuine, unassisted, growth for a specific economy. For example, over the past 32 years real US GDP has averaged 2.7% (CAGR). Over the same time frame the US population has grown by 1.1% on average. On this basis average US GDP growth after a population adjustment is around 1.6%. Of this rate, what has been the debt contribution to growth? If, to keep things simple, we assume that credit has contributed roughly 0.5% per year, this leaves an average 1.1% per annum increase in value or productivity for the US. For this reason we believe that humility is a necessity – there is considerable evidence to suggest that the impressive growth rates and productivity advances experienced over the past several decades have been temporarily boosted by the assumption of unprecedented quantities of debt, on a global level. Perhaps we are not the geniuses we think ourselves to be.
On this basis our expectation would be that the US would need to grow its monetary base by only about 2.2% or so. Long-term gold supply growth trends show a CAGR of 1.6%. While this is close to the necessary 2.2% rate needed to avoid deflationary pressure, it could still be asource of concern for those looking at gold as a viable currency alternative. However this need not invalidate gold as a preferred medium of exchange for while volume growth may remain a challenge, the exact value is still determinable by government – in fact periodic valuation adjustments for gold could conceivably be an ongoing option. Thus a low growth rate in gold volumes could be offset by a small revaluation of the metal itself, thereby preventing deflationary price pressure in an economy.
The problem with the above solution for gold’s apparent excessive scarcity is that it puts government monetary policy makers back in a position whereby they can misprice money with consequential capital distortions a possibility. This is something that market purists would rather not see, but may make a transition to gold more palatable for those accustomed to the flexibility that a fiat currency affords.
Why it probably won’t
While a gold standard could work, we remain sceptical that it will be considered (barring a serious financial crisis, perhaps associated with highly volatile inflation).
In large part we blame the low probability on culture. The world economy has, over the past century, morphed into a highly integrated, government dominated system guided by conventional wisdom (group think). The self-reliant, individualism of the free market has been left behind in favour of a ‘new age’ of coddled consumerism. Culturally this represents a very powerful force in our view, one which minimises creative options/solutions to economic impasses. On this basis we are cautious of predicting such a radical solution to monetary imbalances.
Reviewing September’s Market – Another Month Where Central Banks Drove All Performance
Thursday, September 27th, 2012
by Mark Hanna, Market Montage
It has certainly been an interesting run since the early June low. Whereas June and July were incredibly volatile periods with a lot of bipolar action from week to week (4-7 sessions up, immediately followed by 4-7 sessions down), August was incredibly placid after the early month employment data. September has been more of a mixed bag as some volume has returned to the market and more volatility. But one thing running true through all these months has been the reaction to headlines, especially the central banker type. As I assess September with 2 sessions to go it is a remarkable testament to the central bank dominance. See the chart below:
As of yesterday’s close the S&P 500 is up 1.9% in the month of September. It does not take a rocket scientist to see where those gains were concentrated. On Thursday 9/6 which was the ECB meeting day the S&P 500 gained 2.0%. On Thursday 9/13 which was the Fed meeting announcement the S&P 500 gained 1.9%. So that is 3.9% in those two sessions; in a month where the market is up 1.9%. So every day that was not a central bank announcement day netted together gave you -2.0%. There have been 15 “non announcement” sessions in the month of September; 10 of them have been negative.
If we cast the net a tad bit wider and include the day immediately AFTER these two announcements days – i.e. the “halo” days of the heroin injections into our veins, the data is even more damning. Friday the 7th and Friday the 14th generated gains of 0.4% each. So taken together the 2 announcement days and the 2 “halo” days right after generated gains of 4.7%. All other sessions generated losses of 2.8%. There have been 11 “non announcement” or “non halo” sessions in the month of September; all but 3 have been negative. That’s amazing.
This ties into this piece that shows since 1994 almost all market performance has centered around Federal Reserve (and now I guess we can include the ECB!) announcement days and the 1 day windows before and after said announcement days. [July 16, 2012: Almost Entire Market Return Since 1994 Centered Around Federal Reserve Announcement Days]
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