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Friday, January 25, 2013

Wall Street Week Ahead: Bears hibernate as stocks near record highs


(Reuters) - Stocks have been on a tear in January, moving major indexes within striking distance of all-time highs. The bearish case is a difficult one to make right now.

Earnings have exceeded expectations, the housing and labor markets have strengthened, lawmakers in Washington no longer seem to be the roadblock that they were for most of 2012, and money has returned to stock funds again.

The Standard & Poor's 500 Index .SPX has gained 5.4 percent this year and closed above 1,500 - climbing to the spot where Wall Street strategists expected it to be by mid-year. The Dow Jones industrial average .DJI is 2.2 percent away from all-time highs reached in October 2007. The Dow ended Friday's session at 13,895.98, its highest close since October 31, 2007.

The S&P has risen for four straight weeks and eight consecutive sessions, the longest streak of days since 2004. On Friday, the benchmark S&P 500 ended at 1,502.96 - its first close above 1,500 in more than five years.

"Once we break above a resistance level at 1,510, we dramatically increase the probability that we break the highs of 2007," said Walter Zimmermann, technical analyst at United-ICAP, in Jersey City, New Jersey. "That may be the start of a rise that could take equities near 1,800 within the next few years."

The most recent Reuters poll of Wall Street strategists estimated the benchmark index would rise to 1,550 by year-end, a target that is 3.1 percent away from current levels. That would put the S&P 500 a stone's throw from the index's all-time intraday high of 1,576.09 reached on October 11, 2007.

The new year has brought a sharp increase in flows into U.S. equity mutual funds, and that has helped stocks rack up four straight weeks of gains, with strength in big- and small-caps alike.

That's not to say there aren't concerns. Economic growth has been steady, but not as strong as many had hoped. The household unemployment rate remains high at 7.8 percent. And more than 75 percent of the stocks in the S&P 500 are above their 26-week highs, suggesting the buying has come too far, too fast.

MUTUAL FUND INVESTORS COME BACK

All 10 S&P 500 industry sectors are higher in 2013, in part because of new money flowing into equity funds. Investors in U.S.-based funds committed $3.66 billion to stock mutual funds in the latest week, the third straight week of big gains for the funds, data from Thomson Reuters' Lipper service showed on Thursday.

Energy shares .5SP10 lead the way with a gain of 6.6 percent, followed by industrials .5SP20, up 6.3 percent. Telecom .5SP50, a defensive play that underperforms in periods of growth, is the weakest sector - up 0.1 percent for the year.

More than 350 stocks hit new highs on Friday alone on the New York Stock Exchange. The DowJones Transportation Average .DJT recently climbed to an all-time high, with stocks in this sector and other economic bellwethers posting strong gains almost daily.
http://www.reuters.com/article/2013/01/25/us-usa-stocks-weekahead-idUSBRE90O15V20130125

Choice of Mary Jo White to Head SEC Puts Fox In Charge of Hen House
 

By Matt Taibbi


I was shocked when I heard that Mary Jo White, a former U.S. Attorney and a partner for the white-shoe Wall Street defense firm Debevoise and Plimpton, had been named the new head of the SEC.
I thought to myself: Couldn't they have found someone who wasn't a key figure in one of the most notorious scandals to hit the SEC in the past two decades? And couldn't they have found someone who isn't a perfect symbol of the revolving-door culture under which regulators go soft on suspected Wall Street criminals, knowing they have million-dollar jobs waiting for them at hotshot defense firms as long as they play nice with the banks while still in office?
I'll leave it to others to chronicle the other highlights and lowlights of Mary Jo White's career, and focus only on the one incident I know very well: her role in the squelching of then-SEC investigator Gary Aguirre's investigation into an insider trading incident involving future Morgan Stanley CEO John Mack. While representing Morgan Stanley at Debevoise and Plimpton, White played a key role in this inexcusable episode.
As I explained a few years ago in my story, "Why Isn't Wall Street in Jail?": The attorney Aguirre joined the SEC in 2004, and two days into his job was asked to look into reports of suspicious trading activity involving a hedge fund called Pequot Capital, and specifically its megastar trader, Art Samberg. Samberg had made suspiciously prescient trades ahead of the acquisition of a firm called Heller Financial by General Electric, pocketing about $18 million in a period of weeks by buying up Heller shares before the merger, among other things.
"It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalled. "And he wasn't just buying shares – there were some days when he was trying to buy three times as many shares as were being traded that day."
Aguirre did some digging and found that Samberg had been in contact with his old friend John Mack before making those trades. Mack had just stepped down as president of Morgan Stanley and had just flown to Switzerland, where he'd interviewed for a top job at Credit Suisse First Boston, the company that happened to be the investment banker for . . . Heller Financial.
Now, Mack had been on Samberg's case to cut him in on a deal involving a spinoff of Lucent. "Mack is busting my chops" to let him in on the Lucent deal, Samberg told a co-worker.
So when Mack returned from Switzerland, he called Samberg. Samberg, having done no other research on Heller Financial, suddenly decided to buy every Heller share in sight. Then he cut Mack into the Lucent deal, a favor that was worth $10 million to Mack.
Aguirre thought there was clear reason to investigate the matter further and pressed the SEC for permission to interview Mack. Not arrest the man, mind you, or hand him over to the CIA for rendition to Egypt, but merely to interview the guy. He was denied, his boss telling him that Mack had "powerful political connections" (Mack was a fundraising Ranger for President Bush).
But that wasn't all. Morgan Stanley, which by then was thinking of bringing Mack back as CEO, started trying to backdoor Aguirre and scuttle his investigation by going over his head. Who was doing that exactly? Mary Jo White. This is from the piece I mentioned, "Why Isn't Wall Street In Jail?":
It didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street . . .
I'm not sure if he is as shocked as I am shocked that he is shocked. Did he actually believe that Obama would appoint someone to oversee the banks? As they say on ESPN "Come on man" Queenbee

Read more: http://www.rollingstone.com/politics/blogs/taibblog/choice-of-mary-jo-white-to-head-sec-puts-fox-in-charge-of-hen-house-20130125#ixzz2J2VIdYnr 

17 comments:

Queenbee said...

The Queens movie recommendations for the weekend
not necessarily in order of preference.

The Life of Pi
Lincoln
Silver Linings Playbook
Seven Psychopaths
Flight

If you like musicals Les Miserables.

Queenbee said...

Does anyone remember what price ECL Ecolab Inc was at when I mentioned that Bill Gates was selling Microsoft and buying Ecolab Inc? I am thinking around 65-68.00.

gaw said...

http://stockcharts.com/h-sc/ui?s=SWC&p=D&st=2010-01-01&en=2013-01-18&id=p84619450420

My chart for SWC. High RSI-14 and ADX Trend at 46.48 are indicating a correction is likely short term, but there could be room to run up after that, looking at the PPO (which includes MACD and MACDh)

Probably looking at a general February market correction, which will include shiny metals and miners. Then there is potential for the seasonal late WInter/early Spring rally into April/May.

gaw said...

http://stockcharts.com/h-sc/ui?s=ECL&p=D&st=2010-01-01&en=2013-01-18&id=p67009127107

ECL chart shows a nice run up since Aug 11, almost doubled since then. Looks a bit late to be buying now, as the rally is showing signs of fatigue.

ADX and PPO have rolled over in Nov, it was clearly overbought then, may have worked that off by now preparing to go up further.

But for the general February market correction I think is looming, which will take ECL down along with everything else...I would wait to buy till we see what happens, as markets look bubbly at this point.

OTOH does pay a dividend, which certainly helps.

gaw said...

http://www.ritholtz.com/blog/2013/01/your-three-investing-opponents-2/

excellent read

" ...The worse we are at any specific skill set, the harder it is for us to evaluate our own competency at it. This is called the Dunning–Kruger effect. This precise sort of cognitive deficit means that areas we are least skilled at – let’s use investing decisions as an example – also means we lack the ability to identify any investing shortcomings. As it turns out, the same skill set needed to be an outstanding investor is also necessary to have “metacognition” – the ability to objectively evaluate one’s own abilities. (This is also true in all other professions.)..."

Queenbee said...

Thanks GAW for the reads on SWC and ECL. Also read the story from Barry. How true it is. I got rid of that spam as a lot more has been getting through as of late.

edgar said...

Hello Queenbee,

I constantly marvel at the absurdity and audacity of it all.

Queenbee said...

Edgar I agree. How can anyone mart like like Matt be surprised by the fact that Hopey would appoint a do nothing be appointed. It is like he said the fox watching the hen house. There is no law left in this democracy,

gaw said...

http://www.zerohedge.com/news/2013-01-26/end-era

"The End Of An Era"

"Dr. Tim Morgan, Tullet Prebon,

The economy as we know it is facing a lethal confluence of four critical factors – the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy-returns cliff-edge...

Through technology, through culture and through economic and political change, society is more short-term in nature now than at any time in recorded history. Financial market participants can carry out transactions in milliseconds. With 24-hour news coverage, the media focus has shifted inexorably from the analytical to the immediate. The basis of politicians’ calculations has shortened to the point where it can seem that all that matters is the next sound-bite, the next headline and the next snapshot of public opinion..."

gaw said...

cont.:

"...this report explains that this acceleration towards ever-greater immediacy has blinded society to a series of fundamental economic trends which, if not anticipated and tackled well in advance, could have devastating effects. The relentless shortening of media, social and political horizons has resulted in the establishment of self-destructive economic patterns which now threaten to undermine economic viability. We date the acceleration in short-termism to the early 1980s.

Since then, there has been a relentless shift to immediate consumption as part of something that has been called a “cult of self-worship”. The pursuit of instant gratification has resulted in the accumulation of debt on an unprecedented scale. The financial crisis, which began in 2008 and has since segued into the deepest and most protracted economic slump for at least eighty years, did not result entirely from a short period of malfeasance by a tiny minority, comforting though this illusion may be. Rather, what began in 2008 was the denouement of a broadly-based process which had lasted for thirty years, and is described here as “the great credit super-cycle”...."

gaw said...

Superb analysis there at that link, covers 200+ years of history, from a very high level view.

ZH condenses it, the full report is available as an 82 page .pdf:

http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

His conclusion on energy is I think correct in a broad sense, that "...by 2020, at which point energy will be about 50% more expensive, in real terms, than it is today, a metric which will carry through directly into the cost of almost everything else – including food." Which will be a massive problem for poor nations, whose citizens won't be able to afford scarce food.

But oil and natural gas will be available in quantity, albeit at higher prices, Peak Oil is a failed theory IMHO (and I used to be an ardent believer):



gaw said...

http://www.telegraph.co.uk/news/worldnews/australiaandthepacific/australia/9822955/Trillions-of-dollars-worth-of-oil-found-in-Australian-outback.html

"Trillions of dollars worth of oil found in Australian outback

Up to 233 billion barrels of oil has been discovered in the Australian outback that could be worth trillions of dollars, in a find that could turn the region into a new Saudi Arabia..."

gaw said...

That is just one find in AUstralia, I expect they likely have 6-12 more like that, since they have only started exploring many remote areas, and they were not looking for this type of shale deposit previously.

So it is highly probable that Australia has far more oil than Saudi Arabia, and Canada as well.

At current prices these deposits are not economic to develop, but at a price 50% higher, as in that analysis above, they will be.

Supply and demand will determine when these deposits are exploited, but as production falls in traditional producers like Saudi Arabia, the time will come.

gaw said...

Even though it is not mentioned in the report at all, the economic theory of The Kondratiev Wave is fully in agreement with the timelines and projections of the 'End of An Era' I linked to above.

The only difference would be that the study author above concludes that technology will not be able to solve all our problems, primarily the energy EROI problem he cites so often.

I disagree, the Kondratiev Wave shows that through hundreds of years of history there is always a recovery phase after the contraction phase, that is the nature of a cycle. And the recovery is always built upon a base of new technologies creating new economic expansion.

With the pace of scientific discovery moving along at it's present fast pace, I feel that new technologies will emerge and they will help to drive the future economy.

I constantly read about breakthroughs in areas like solar and wind energy generation, where efficiency and output increase. Those will translate into commercial products in a few years. This week there was news about a new solar collector tech that increased efficiency quite a bit, and that is ongoing.

gaw said...

As I said before, if you are a pessimist then it is all swirling the bowl, while optimists do not see things that bleakly.

Of course I live in a wealthy developed nation that won't be severely affected by 50% higher energy and food costs.

Poor citizens of places that lack natural resources and the ability to produce their own food should be worried, they will be severely impacted. That is what happens when global population grows too large.

Nations like India and China will be in deep trouble, as their populations are way too large. India in particular has almost no resources, and both of them can't produce enough food to feed themselves.

Mammoth said...

Double Anonomous SPAM cleanup on Aisle 11, please!

Mammoth said...

GAW said..."India in particular has almost no resources, and...can't produce enough food to feed themselves."
- - - - - - - - - - -
Not that Indian food isn't attractive to the people who live in India, but I would rather eat dirt than that stinky sh!t the Indians cook up.

Blech!