The Mess That Greenspan Made - Part 19

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 model portfolio or the buy ratings this week, but last week’s Fed meeting and economic reports are detailed along with what is increasingly being called a stock market bubble in the following discussion topics:

The executive summary is as follows:

After some very good economic reports in the U.S. and more talk by Federal Reserve hawks about raising interest rates sooner rather than later, U.S. equity markets experienced their heaviest selling in two years after notching new record highs the week prior. Violence in Gaza, Ukraine, and elsewhere added to stock investors’ skittishness while also pushing the U.S. dollar higher and this pressured commodities markets.

A rebounding China economy sent share prices higher there, however, this was about the only asset class that saw gains as even safe haven investments such as U.S. Treasuries and precious metals moved lower. The financial media is now full of warnings about a long overdue correction (or much worse) as the two worst months of the year for stocks – September and October – quickly approach. For the week, the model portfolio fell 1.4 percent and is now up 8.2 percent for the year.

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The Labor Department reported that U.S. employers added 209,000 jobs in July and prior months were revised slightly higher as the unemployment rate rose from 6.1 percent to 6.2 percent, due largely to people entering the labor force but not being able to find work.

In a separate report from the Institute for Supply Management, the broadest measure of the nation’s manufacturing sector showed strong growth last month as the Purchasing Managers Index rose from 55.3 in June to 57.1 in July, the highest level since April 2011.

The key new orders index jumped from 58.9 to 63.4, the best reading of the year, and the employment index rose from 52.8 to 58.2, the best reading in over two years.

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Friday Morning Links

Markets: Running out of steam – Economist
Dow Erases 2014 Gain Amid Global Selloff – Bloomberg
Wall Street Hounded By Multiple Concerns – Nasdaq
Volatility Index Hits Three-Month High – Barron’s
This is What Happens When the Fed Tightnes! – Comstock Funds
Today’s parallels with 1914 are very worrying – Telegraph
How Do You Spell “Inflation Hawks on the Warpath?” ECI Print – CEPR
Why Putin Has 2006 Flash Before His Eyes After Sanctions – Bloomberg
China’s factories spring to life as global trade reawakens – Reuters
History Suggests China Is on Verge of Banking Crisis – WSJ
Students and parents borrowing less to pay for college – CNN/Money
Behold, the 17,000% overdraft charge – MarketWatch

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Stocks fall further after big sell-off – USA Today
Why I am now shorting this market – CNBC
Why Stocks Could Fall by 50 Percent – Slate
Asia stocks sideswiped, but China motors on – Reuters
Why Wait? The Case for Selling Stocks Now – of two minds
Treasuries Are World’s Worst Performers Before Data – Bloomberg
Gold edges off 6-week low before U.S. jobs data – Reuters
Gold’s Strongest Months Are August, September, November, January – GoldCore
HSBC: Physical Gold Demand On Price Pullbacks May Stem Further Losses – Kitco
Chinese gold jewellery demand sees first quarterly drop in 8 years – Reuters
Gold Prices From 1971 To 2014 in 3 Waves – GoldSilverWorlds

GDP: Peeling Back More Layers – Alhambra Partners
Percentage who say economy’s ‘good’ on the rise – CNN
Employment Cost Index Finally Brings Wage Inflation – 24/7 Wall Street
Chicago PMI plunges in biggest one-month drop since Oct. 2008 – MarketWatch
BOJ’s Kuroda defends upbeat economic view despite soft data – Reuters
Asian Economy: Japan’s Weak Yen Woes – Bloomberg
5 things to know about Argentine debt crisis – USA Today
Argentina Unopposed to Bank Deal as Bonds Sink – Bloomberg
In San Francisco’s real estate market, $1M won’t buy much – NY Daily News
No-Exit Strategy May Be Fed Burden in Unwinding Stimulus – Bloomberg
Fed Hawks Shake the Stock Markets on Interest Rates – Fiscal Times
Plosser Says Fed ‘Well Behind’ on Rate Setting – WSJ


Former Federal Reserve Chairman (and, lest we forget, namesake of this blog) Alan Greenspan talks with Betty Liu and Tom Keene of Bloomberg about the near certainty of a stock market correction sometime in our collective, not-too-distant future.

According to this Reuters report (I could only get about three minutes into this 18 minute segment before feeling nauseous), Bubbleman states the obvious when concluding “you have to assume somewhere along the line we will get a significant correction”.

© 2010-2011 The Mess That Greenspan Made