Portfolio Manager's Commentary on Investing and Trading in the U.S. Financial Markets
Wednesday, September 03, 2008
Stocks Finished Mixed as Losses in Commodity, Construction and Tech Stocks Offset Gains in Financial, Retail and REIT Shares
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In Play
Stocks Lower into Final Hour on Forced Selling, Global Growth Worries
Today's Headlines
Bloomberg:
- The euro fell to the lowest in more than seven months against the US dollar after reports showed business investment, exports and retail sales declined, adding to evidence of an economic slump in the single-currency region. The 15-nation currency also dropped to a five-month low versus the yen on speculation the European Central Bank will signal concern tomorrow the economic outlook in the region is deteriorating. The pound traded near a two-year low against the dollar on concern the U.K. is headed for a recession. The South Korean won was at the weakest in four years on speculation international investors are selling the country's assets.
- Russia's ruble slid against the dollar and the euro amid concern about stability in the region as neighboring Ukraine's ruling coalition split and U.S. Vice President Dick Cheney prepared to visit Georgia this week. The currency had its biggest drop versus the dollar since Aug. 8, when Russia sent tanks into Georgia over the breakaway region of South Ossetia, a move criticized by the U.S. and Europe.
- BlackRock Inc.,(BLK) the biggest publicly traded U.S. asset manager, is seeking as much as $3 billion for a fund to buy loans that banks are selling for losses, said two investors with knowledge of the matter.
- Ospraie Management LLC may be the latest casualty from price swings in natural gas, the commodity responsible for the $1.9 trillion hedge-fund industry's biggest blowup with Amaranth Advisors LLC. New York-based Ospraie told investors yesterday it will close its biggest hedge fund after losing 38.6 percent this year on bad bets on commodity stocks. Holdings in natural gas-related companies made up almost a fifth of Ospraie's investments at the end of June, before the commodity's price dropped 41 percent. ``With natural gas I sometimes feel there's a game of Russian roulette going on,'' said Jeremy Charlesworth, founder of London-based Moonraker Fund Management Ltd., which runs a commodities fund of hedge funds. ``Natural gas goes through these periods where it goes up two or three times and fortunes are made. And every time it collapses, fortunes are lost and there's a casualty.'' ``It swings enormously,'' said Charlesworth, who tries to invest in funds run by managers experienced with its ``mercurial nature.'' ``If you've got too much of the stuff coming out of the ground, there's no place to put it, and the price just collapses. It's almost manic depressive: one minute you've made a fortune and then next it's all gone.''
- Crude oil fell as Royal Dutch Shell Plc and ConocoPhillips said that Hurricane Gustav caused no damage to platforms in the Gulf of Mexico. ``The next number we are going to test is $100,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``One hedge fund has shut down and the demand picture here has been ugly, so the market will remain under downward pressure.'' ``The U.S. economy is now looking stronger then Europe's, which is giving the dollar strength and reducing the appeal of commodities,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. The dollar's recovery will cause the decline in oil prices to continue, OPEC President Chakib Khelil said today in a phone interview, adding that he expects supply to outstrip demand by as much as 1 million barrels a day in the first half of 2009. ``The news from Ospraie will cause hedge funds to look at the market with a jaundiced eye, which will spur them to further reduce their exposure,'' Mueller said.
- Aluminum fell for an eighth day, the longest losing streak since 2001, on signs manufacturers are delaying purchases until economic growth improves. Stockpiles of aluminum climbed 2,650 metric tons, or 0.2 percent, to 1.17 million tons, the highest since April 2004, the London Metal Exchange said today. European company investment fell 1.2 percent in the second quarter, the first decline in five years, the European Union's statistics office said today.
- Wall Street fired employees last month at the slowest pace in a year, a sign that financial-services firms may be emerging from a credit crunch that cost the industry more than 100,000 jobs. Financial firms eliminated 2,182 jobs in August, the fewest since July 2007, Chicago-based placement company Challenger, Gray & Christmas said today. The total compares with 14,400 reductions on average in the first seven months of 2008 and was a fraction of the 35,752 people who lost their jobs last August.
Wall Street Journal:
- Amid a national debate over offshore oil drilling, the federal government is preparing to unleash development of another offshore energy source: wind.
NY Times:
- A drug being developed by Regeneron Pharmaceuticals sharply reduced the number of gout flare-ups in a clinical trial, the company is expected to announce Wednesday.
- Boeing(BA) Machinists Voting on Whether to Strike.
Le Temps:
- George Clooney raised more than $900,000 in a sold-out fundraising event in
Kommersant:
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Le Monde:
- Jean-Claude Juncker, who chairs a group of finance ministers from countries sharing the euro, sees a “substantial” economic slowdown in Europe.
Chosun Ilbo:
- HSBC Holdings Plc is interested in buying a stake in Lehman Brothers Holdings(LEH), citing finance industry officials. London-based HSBC, a Chinese bank and US hedge funds are competing separately with Korea Development Bank for a stake in Lehman
Khaleej Times:
- Gulf Arab states including Saudi Arabia and the United Arab Emirates have less reason to drop their currency’s pegs to the US dollar as the US currency is strengthening, citing Mohsin Khan, the International Monetary Fund’s director for the Middle East.
Graph: Inflation Expectations Continue to Plunge
(click on image to enlarge)
BOTTOM LINE: The 10-year TIPS Spread, a good gauge of inflation expectations, is falling another 5 basis points today to 1.99%. This is down 63 basis points in about seven weeks and the lowest since October 2003 when deflation was the worry. The CRB Index had been the driving force behind inflation fears. The CRB Index is now down 21%, in bear market territory, in just two months. The secular trend of disinflation is likely resuming as the commodity bubble bursts. In my opinion, one of the primary factors behind the recent parabolic rise in commodity prices was institutional money chasing performance and hedging against the perception of higher inflation. Falling prices and diminishing inflation expectations should lead to less demand for commodities from institutions over the intermediate-term.
Bear Radar
Style Underperformer:
Mid-cap Growth (-2.19%)
Sector Underperformers:
Coal irlind (-5.80%), Construction (-3.82%) and Oil Service (-3.40%)
Stocks Falling on Unusual Volume:
GLW, ANW, WFR, MRVL, HES, GDP, CLF, AWC, NOK, IMO, JOYG, TTWO, ACGY, CRDN, BUCY, AKAM, FRX, PVG and ETH
Stocks With Unusual Put Option Activity:
1) FRX 2) BHP 3) TTWO 4) JOYG 5) EP
Factory Orders Rise More Than Estimates
- Factory Orders for July rose 1.3% versus estimates of 1.0% and an upwardly revised 2.1% increase in June.