By all means, keep those rumors flowing. That’s all we’ve got to keep this stock market pressing ever higher. Up next, it’s the Jackson Hole hope-fest. I’m sorry, but I just don’t buy all of these rumors and in fact am getting really tired of the endless stream of false hope they engender.
The big news during the weekend previous to last week was a rumor of a new plan by the ECB to cap interest rates at varying levels on sovereign bonds. This knocked Spanish and Italian bond rates down sharply. The head of the German central bank later dispelled the rumor, but that didn’t seem to matter. It’s still percolating a week later! Stocks in Asia ended flat but in Europe turned and closed marginally negative after the rumor was squashed. U.S. stocks traded virtually unchanged on very low volume. VXO closed down 4% to the ridiculously low 12.89.
Despite the lackluster market, the recent ascent of Apple moved it ahead of Microsoft as the all-time market capitalization leader. As mentioned in this commentary back in April before the most recent Apple slide, these kinds of records serve as another indicator that Apple’s stock price and the level of the stock market in general might be getting a bit frothy. And from the buy and sell a turkey department, last Monday you could get ten shares of Facebook for one share of IBM. This loser ratio will be an exciting new indicator to watch.
Tuesday, stocks in Asia closed flat, but Europe roared ahead with a 0.8% gain. Spanish and Italian 10-year bond rates continued their descent down fantasy lane, now far below their recent respective 7% and 6% thresholds. U.S. stocks briefly set a four-year high before turning slightly negative by the close on light volume. IBM broke back below 200 to close at 198.78. Facebook shed another 4% as insider Peter Thiel dumped most of his shares, further eroding confidence in the future of that phantom business. VXO jumped nearly 9% to close above 14, AAPL pulled back over 1%, while gold powered upward 1.5%.
Stocks turned lower in Asia Wednesday giving back about 0.5% after trade data from Japan dampened spirits. In Europe, stocks gave back Tuesday’s bogus gain and more. U.S. stocks marked time breathlessly awaiting some glimmer of hope from the FOMC that more heroin is just around the bend—fat chance. The minutes of the Federal Open Market Committee July 31–August 1, 2012 offered no real hope for further easing other than perhaps extending the outlook date for keeping rates low. Here are some highlights:
…the staff’s medium-term forecast for real GDP growth was little changed…
The staff’s forecast for inflation was little changed from the projection prepared for the June FOMC meeting.
The staff’s broad nominal index for the foreign ex-change value of the dollar changed little, on net, over the intermeeting period, although the dollar appreciated against the euro.
Participants also exchanged views on the likely benefits and costs of a new large-scale asset purchase program. Many participants expected that such a program could provide additional support for the economic recovery both by putting downward pressure on longer-term interest rates and by contributing to easier financial conditions more broadly.
The Committee had provided additional accommodation at its previous meeting by announcing the continuation of the maturity extension program through the end of the year, and more time was seen as necessary to evaluate the effects of that decision.
At the conclusion of the discussion, members agreed that they would closely monitor economic and financial developments and carefully weigh the potential benefits and costs of various tools in assessing whether additional policy action would be warranted.
Many members expressed support for extending the Committee’s forward guidance, but they agreed to defer a decision on this matter until the September meeting in order to consider such an adjustment in the context of updates to participants’ individual economic projections and the Committee’s further consideration of its policy options.
In the midst of this day consumed with parsing sentences, AAPL rebounded 2% while IBM declined 0.7%. Trading volume remained light and the 10-Year U.S Treasury Bond rate plummeted nearly 5% to close below 1.72%.
Thursday, stocks in Asia gained about 0.5% for no rational reason. PMI numbers from China and Europe pointed to further contraction. Stocks in Europe lost about 0.5% and in the U.S. about 0.8%. The rise in precious metals accelerated as gold added almost another 2% and silver nearly 4%. While the timing is right for this move, when the current investment asset bubble deflates, precious metals should also succumb to the downdraft. The rate on the 10-Year U.S. Treasury Bond slid over 3% to close below 1.67%. The VXO ramped up nearly 8% to close above 15.
Friday, Asian stocks shed over 1% as reality finally began to replace hope. Stocks in Europe moved slightly lower by midday. In the U.S., with the threat of a significant hurricane approaching over the weekend, it should have been that traders would exit positions and book profits rather than take the risk of a Monday surprise, but that wasn’t the case. Instead a letter from Bernanke to a Representative Issa containing nothing new captured trading attention and again lifted stocks on hope.
U.S. stocks ended the day up 0.5% on dismal volume, but still closed down for the week 0.5%. Much more interesting was the 7% weekly gain in precious metals. In order to assure Romney’s election, things need to start getting interesting really soon. A hurricane’s approaching. Hold on to your hats!