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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Holiday Holding Pattern for Sentiment/Stocks?

On November 23, 2011, in Economy, Stocks, by Tim

It would appear that we’ve entered a holiday holding pattern for consumer sentiment and the stock market, that is, until something really bad happens either in Europe or in the U.S.

The latest take on the mood of the American consumer from Reuters and the University of Michigan shows that attitudes were virtually unchanged, the sentiment index falling from 64.2 in October to 64.1 in November. One-year inflation expectations were steady at 3.2 percent with the five-year inflation outlook rising one-tenth to 2.7 percent.

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Will the Super Committee Sink Stocks?

On October 17, 2011, in Debt, Stocks, by Tim

[Following are excerpts from the current issue of the Weekend Update at Iacono Research.]

A simple Google news search on “super committee” turns up all sorts of headlines about a 12-member Congressional committee – split evenly between Democrats and Republicans from both the House and the Senate – that began work six weeks ago to recommend a set of proposed spending cuts and revenue increases totaling $1.2 trillion over the next ten years.

After just a brief look at the headlines, the difficulty of their job becomes clear:

10/10 Deficit ’supercommittee’ struggles as clock ticks – AP
10/11 Debt committee could raise risk of U.S. downgrade – CNN/Money
10/13 GOP: Defense cuts shouldn’t be part of super-committee plan – CBS News
10/13 House Dems recommend new taxes to ’super committee’ – LA Times
10/14 Republicans want debt panel to overhaul taxes – AP
10/14 Deficit ’super committee’ flooded with ideas. Will any work? – CSM
10/14 Panel Gets Earful Of Advice On Taming The Deficit – Kaiser Health News
10/14 Many suggestions but little time for debt panel – AP
10/14 Super Committee’s Cuts Will Impact Farm Bill – Dakota Farmer

With a set of recommendations due by November 23, just over a month from now, the progress made by this group (or the lack thereof) could be the biggest single factor in how asset markets move this fall and, based on initial indications (that are hard to come by since the committee has been operating in secrecy), things are not looking good.

(Continue reading this article at Seeking Alpha.)

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Consumer Sentiment Retreats

On October 14, 2011, in Economy, Stocks, by Tim

The latest reading for the Reuters/University of Michigan consumer sentiment index showed that the American mood slipped back toward the August debt-ceiling debate low after a rebound in September proved to be short-lived. The overall index fell from 59.4 last month to 57.5 in the first of two readings for October as a weak labor market continues to weigh on consumers, the rebounding stock market doing little to boost confidence.

The expectations component fell from 49.4 to 47.0, the lowest level since May 1980, and the current conditions index also fell, down from 74.9 to 73.8. About the only good news in the report was that rising prices are no longer the concern they were earlier in the year, the one-year inflation outlook falling from 3.4 percent to 3.2 percent while the view in five years is that prices will be rising at a 2.7 percent rate, down from a 2.9 percent pace.

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Broken Clock to be Right Again?

On October 13, 2011, in Economy, Stocks, by Tim

In this item at MarketWatch, Peter Brimelow brings us details of the latest investment performance of the folks at Elliott Wave, a group that comes about as close as you can get to being perma-bears and, of course, perma-deflationists.

One bear feeling good about deflation call

An investment letter that dodged the crash of 2008 is a current top-performer. It’s feeling good about its long-standing deflation prediction.

The Elliott Wave Financial Forecaster, edited by Steve Hochberg and Pete Kendall, is fifth of just nineteen of the 180-plus investment letters monitored by the Hulbert Financial Digest to have beaten the market in 2011 through September—up 5% by HFD count versus negative 9.86% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

This is, frankly, pretty unusual. EWFF has been relentlessly bearish for so long that many investors think it was always so, and any favorable mention gets vitriolic response.
…
Needless to say, 2008 was a great year for EWFF, especially because it also made one of its brief excursions into bullishness in time to catch the subsequent bounce. See April 2 column.

You can still see this in HFD’s monitoring: over the past five years, EWFF was up an annualized 0.7% versus negative 0.75% annualized for the total return Wilshire 5000.

But further out, the cost of prolonged bearishness has been horrific. Over the past fifteen years, for example, EWFF is down negative 3.43% annualized versus a gain of 5.4% annualized for the total return Wilshire 5000. It’s worth noting, however, that EWFF closes the gap significantly on a risk-adjusted basis.

Still, in the face of the 2008 crash, and the savage slump this summer, few investors can wholly repress the fear that, just maybe, the Elliott bears might ultimately be vindicated.

Well, not as long as there are people like Ben Bernanke with his hand on the printing press… As noted here on a number of occasions before, I’ve long thought that Elliot Wave Theory is nonsense and, basically, lost all respect for Bob Prechter when he predicted that the gold price would never surpass $400 an ounce about a decade ago.

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Investor Optimism Plunged Last Month

On October 11, 2011, in Economy, Stocks, by Tim

If yesterday’s big rally did signal that markets have put in their lows for the year, someone should tell retail investors to get on board because, according to this Gallup poll , they were pretty shaken up last month, investor confidence plunging to early-2009 levels.

It should come as no surprise that two-thirds of the survey respondents said they feel “little or no control in their efforts to build and maintain their retirement savings in the current environment”, but Fed Chief Ben Bernanke’s low interest rates have forced many of them to hold their nose and stay in the market in hopes of higher returns.

The potential good news here is that confidence last reached current levels in February 2009 just before one of the biggest stock market rallies in history that began in March.

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Another Bad Month for John Paulson

On October 10, 2011, in Commodities, Stocks, by Tim

Wall Street’s wunderkind over the last few years, famed billionaire hedge fund manager John Paulson, just seems to keep running into bad luck (or maybe it’s just the results of bad decisions) and disgruntled investors seem to just keep telling the New York Times about it. This report in DealBook provides some of the details:

Tired of incessant leaks to the media about its poor performance, Paulson & Company, the hedge fund started by the billionaire John A. Paulson, decided a few weeks ago to amend its reporting policies to make it harder to obtain performance data.

But the changes failed to obscure this painful fact: one of his largest funds is down 47 percent through September, a loss that would require returns of almost 100 percent to surmount, according to investors in the fund. The nonleveraged version of the same fund is down about 32 percent, according to the investors.

Other funds that were doing fine earlier this year are now also taking a nosedive, including Mr. Paulson’s gold fund ( up 1 percent for the year after falling 16 percent last month), which placed bets on various assets linked to gold, as well as his Recovery fund (down 31 percent for the year), which placed a bet on the recovery of the United States economy. Both funds were hit with double digits losses in September after gold prices fell and stock market volatility continued.

The reporting changes included not allowing investors who don’t own a particular Paulson fund to see the performance of that fund and other similar moves to reduce how much performance data is disseminated to those who really don’t need to see it. All this comes after the big $500 billion loss on a Chinese timber company earlier in the year and an optimistic view of the U.S. banking sector that, so far, has proven to be off the mark.

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