The Mess That Greenspan Made - Part 10

The Weekend Update is Now Available

The latest issue of the Iacono Research Weekend Update has been posted to the website and is now available for subscribers here.

There will be no changes to the buy ratings but one change to the model portfolio this week, the latter subject being covered in the following discussion topic:

The executive summary is as follows:

Economic reports from around the world were disappointing, particularly in Europe where the entire region appears to have struggled mightily in recent months, but conditions were somewhat better in the U.S. and Asia. Stocks and bonds both ended higher again as renewed enthusiasm for the former earlier in the week was dashed on Friday on new geopolitical concerns in Ukraine, prompting demand for safe havens.

Precious metals were not the safe haven that investors had in mind as prices for both gold and silver ended lower, but natural resource stocks fared much better with the notable exception of energy stocks that fell with the oil price. REITs rose, emerging market stocks rose, U.S. stocks rose, and Treasuries rose as the model portfolio gained 0.3 percent, now up 9.1 percent for the year.

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Stocks or Bonds: Which Has It Right?

Much has been made about the rather disturbing trend this year for the price of just about every asset class to go up. As shown below, stocks and bonds normally go in opposite directions over long stretches of time, however, that’s not been the case this year.

In fact, 2014 has, so far, proved to be quite the outlier in many respects for how stock and bond prices have moved for reasons that should be clear below.


Friday Morning Links

Ukraine border guards to inspect Russian aid convoy – BBC
Islamic State Said to Challenge Al-Qaeda for Leadership – Bloomberg
End of the Wirtschaftswunder? Germany’s sudden slowdown – Reuters
Policing Protests Like Soldiers Makes Everyone Less Safe–Even Police – Atlantic
American Consumer Debt Declines for First Time In a Year – Bloomberg
Study Finds Americans Plagued by Outstanding Debt – Fiscal Times
Will subprime auto loans ignite another credit crisis? – MyBudget360
Why China Might Begin Dumping Its $1.3 Trillion Hoard Of US Treasuries – ContraCorner
What Happened During Previous Reserve Currency Transition? – Economic Reason
70 Years Later – Warren Buffett’s Dad Is Proved Right – Zero Hedge
Warren Buffett stock tops $200,000 a share – CNN/Money
The Forever Slump – Krugman, NY Times
Robin Williams Had Parkinson’s – Daily Beast

Futures up; consumers may be in better mood – MarketWatch
Why Are The Bulls Regaining Momentum? – Short Takes
Commodity Prices, Bond Yields Send Warnings Signals – Fiscal Times
Investors Pour $680 Million Into U.S. Junk Bonds in Latest Week – WSJ
China Mobile leads Hong Kong to highest close in years – MarketWatch
Treasuries Advance as Manufacturing Data Drop More Than Forecast – Bloomberg
Gold prices turn lower as European stocks climb – Reuters
Russia may become World No. 2 gold miner this year – Mineweb
Paulson holds onto gold ETF, Soros adds gold miners in quarter – Reuters
Iron Ore Prices Tumble as Four Large Producers Ramp up Production – Caixin Online
To prosper, gold needs China and India more than fear: Russell – Reuters

30-yr Treasury Yield: “The Economy Is Collapsing” – IRD
ECB under pressure to boost growth, analysts say – BBC
Is the eurozone being dragged into deadly spiral of deflation? – Telegraph
U.K. Keeps Momentum in Second Quarter With 0.8% GDP Growth – Businessweek
Argentina’s blue dollar market hits 60% premium to official rate – Sober Look
Modi Promises Bank Accounts for All Families in India – NY Times
Worries over China growth as July lending plunges – Channel News Asia
Canadian economy added 42K jobs in July, not 200 as originally reported – FP
Winners and losers in Canada’s housing market – Globe & Mail
US homeowners stay unemployed for longer – Lindau Nobel
More quantitative easing to come? – MarketWatch
Asian Eyes on Jackson Hole – WSJ


One More Thing to Worry About

The innocuous looking graphic below from this WSJ story ($) has more than a few people worrying a little more today than they did yesterday about what might go wrong in the financial system as we bear down on the worst two months of the year for equities.

According to the report,  the repo market is “a critical part of the plumbing that keeps money flowing”, enabling “hedge funds, investment banks and other financial firms to borrow and lend short-term funds, often overnight” and has recently seen some lenders pull back due to new regulations.

A less sanguine take can be found in this item at Quartz that characterizes repos thusly:

The bottom line is that repos are leverage. They are a way for banks to use borrowed money, instead of their own, to take positions in the market. When times are good this works pretty well. But in a crisis, things get bad quickly.

Just in case you needed it, that’s one more thing you can worry about.

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