Let the devil in

May 20 - 24, 2013

AMERICAS 

Market comments: The global rally from the last several weeks ended last week as markets fell following a statement by Bernanake that quantitative easing could, realistically, end (and soon, according to some FOMC members). The S&P 500 lost ~1 per cent through the week. Remember, “the Fed has been buying $85 billion worth of bonds each month in its effort to lower interest rates, stimulate lending activity, and boost the economy.  Many have argue that this has also caused bond investors to flee the bond market and head to the stock market.” With an improvement in the economy, monetary policy is likely to slow.

Was a short trading week in Canada, as markets were closed for Victoria Day. This week, markets in the US are closed Monday for Memorial Day.

One more comment on rising markets:

With the S&P 500 rising for the past six months without so much as a 5 per cent pullback – versus corrections of 10 per cent or more during each of the previous four years – observers are increasingly wondering if stocks are simply rising because they are rising.

Company news:  Tim Cook and Apple problems were predominant last week, as Cook testified in front of senate staunchly arguing the company has done nothing wrong.  Apple (legally) uses Irish subsidiaries to pay lower taxes. Ireland, also, has given the company a special tax rate (in return for jobs). For the record, the EU is imposing stricter tax transparency rules going forward.

Sears shares fell 14 per cent after reporting a loss of $279-million in its latest quarter and a drop in revenues. The company also reported “it was exploring strategic alternatives, including a possible sale.

International news: Following Bernanke’s comments the Japanese markets fell 7.3%, a drastic move not seen since the Tsunami in 2011. Is it the end of Abenomics or the start of investor profit taking?  The index had reached a five and a half year high last Wednesday, and has gained approx. 80 per cent since last November.

Otherwise: Goldman Sachs published a chart comparing hedge fund performance with the major stock-market indexes. It seems “the average hedge fund is up just 5.4 percent so far this year. During the same period, the Standard & Poor's 500 Index has risen 15.4 percent, and the average mutual fund has gained 14.2 percent.

 

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Also, the news that Harper’s chief of staff, Nigel Wright, resigned after admitting he had paid $87,000 to a senator under investigation for expenses fraud, did not become main stream news in Europe. However, it did receive a few mentions.

UK/EMEA

 Markets: The FTSE 100 finished last week about 1 per cent down. While the beginning of the week had brought the index close to a new high, Bernanke's comments regarding monetary policy in the US pushed global markets lower. The falls prompted a comment from David Schwartz, market historian:

Drops of at least 2% much more common than most investors think. We have suffered 246 drops of at least 2% since the FTSE 100 was first compiled in 1984. But, 94 of them (38%) have occurred in the last 5 years. They are occurring more frequently than in the past. 58% of all big drops of at least 2% occurred during bear markets. There are no short-term implications associated with big falls. The odds of a price gain one-day, three-days or five-days later are each just over 50/50

Otherwise: Data confirms the UK economy grew 0.3 per cent in Q1 2013. Yet, consumer spending barely rose and the trade balance is out of whack (widening). In London, housing prices in the South East (Brixton area) as sky rocketing. Apparently, prices have increased by c. 25 per cent in the last year.  

 

*Let the Devil in is a song by TV on the radio. The album is titled a return to cookie mountain, which seemed an apt title to emphasise Tim Cook's testimony around Apple's tax evasion policies.