FYI | Jan 12 2008
By Rudi Filapek-Vandyck
Just a thought on the side: where would most stockbrokers be if their statements and declarations would be as closely scrutinised as those of politicians in a Federal or Presidential election?
January has turned into the month wherein all hopes and pretentions, all alternative scenarios and maybe-maybes have come to unravel and if anything the speed at which the process is taking place has taken most experts and commentators by surprise. On Friday US shares booked another virtual free fall as shares around the world kept on falling. Taking note from the local army of technical chartists, and the fact that the S&P/ASX200 index closed below 6000 on Friday, it may therefore be assumed the Australian index will test critical support at around 5900 this week, possibly as early as Monday.
Did someone say: interesting times?
Friday’s news on Wall Street was bad, and it only got worse as the day progressed. US Treasury Secretary Henry Paulson warned investors US economic growth has slowed “rather materially” at the end of last year. The US reporting season is about to kick off in full and there’s not a small but a rather large army of investment professionals out there who fears the worst for the next few weeks due to the fact that most forecasts by securities analysts are believed to be too rosy.
The Australian reporting season will commence in February (with the first result releases due out in two weeks) and FNArena has observed that Macquarie and Citi have recently downsized their corporate profits expectations for the current and coming fiscal years.
Remember the theory that the world had changed and that the increasing amount of wealthy citizens had come to represent a larger stake of total consumer spending in the US economy? Well, on Friday Tiffany, the one from “Breakfast at” and the world’s second-biggest luxury jewelry seller announced holiday sales in its stores that were open at least for one full year had shrunk by 2% – this was against market expectations for an increase and investors dumped the stock as a result. As another bullish theory went out the window Tiffany shares recorded their steepest decline in more than three years.
Now that we’re recording historical milestones, the current start of the new calendar year is the worst since 1982 for the US stock market (says Bloomberg).
Following recent indications that American consumers had simply increased their credit card debts in the wake of the ever deepening housing crisis, American Express popped up with a warning that market expectations for the first quarter would not be met. Huh? Ok, here comes another one: American Express shares dropped the most since 2001 on Friday.
And while we’re at it: US equities have now weakened three weeks in a row, the longest streak since August last year.
So far the S&P 500 index has lost 4.6% this month.
Best Buy Co, the largest US consumer-electronics chain, said same-store sales growth in December slowed to 1.5% from 7% a year ago further fueling concerns about consumer spending in the world’s largest economy. Best Buy shares dropped US$2.37 to US$44.20.
The seasonally adjusted trade gap widened 9.3% to $63.1 billion in November.
There must have been some happy faces around though as Bank of America finally agreed to buy troubled mortgage lender Countrywide for about US$4 billion. Mind you, this decision follows an ill-timed, loss-making US$2bn investment in the mortgage company last year. Countrywide shares actually declined on Friday, but they’d jumped more than 50% during the previous session.
Amidst all this sadness and sorrow crude oil futures continued their slide, falling 2% to US$93.71 per barrel WTI, but precious metals held their ground and base metals actually staged a minor comeback. However, investors better not get too excited about this either with market commentators holding short-covering by wrong footed speculators responsible for this.
One of the theories going around in the market is that many hedge funds have deserted equity markets this month in favour of direct commodity exposure. This may explain why the likes of copper have performed well thus far despite equity markets pricing in a gloomy outlook for the US and the world economy. Obviously, sooner or later something will have to give. The general expectation is that base metals will start reflecting similar concerns as equities rather than the other way around.
Gold set a fresh intra-day all-time high in nominal terms at US$898.10 an ounce on Friday.
