The Rally Slows
Guest post by Doug Short.
The world market rally slowed last week, except for the Nikkei 225, which remained in the top spot with a 3% gain. The indexes of the two eurozone nations, France and Germany, came in a distant second and third, with 1.5% and 1.4% gains, respectively. The S&P 500 beat out the Mumbai SENSEX in a close race for an equally distant fourth place. The UK’s FTSE 100 kept one nostril above water with a 0.1% gain. China sank into the Red Sea, with the Hang Seng down 0.1% and the Shanghai Composite down 2.5%.
Only one of the eight markets in my weekend basket, the Shanghai Composite, is in bear territory — the traditional designation for a 20% decline from an interim high. This is one less than last week, with Nikkei’s strong performance lifting it above this market stigma. See the table inset (lower right) in thechart below. In our gang of eight, the S&P 500 remains the closest to an interim new high, down fractionally a from its April 2nd peak. At the other end, the Shanghai Composite is over 39% off its interim high of August 2009.
The inverted crash
Just a reminder.
Prior to the start of the summer, many were writing about another perfect carbon copy of last year. If investing was only that easy.
In this inverted summer crash of 2012, the Eurostoxx is up 18% over the past two months. Last year we saw a loss of 18% over the same period.
The three latest days, Eurostoxx is up app 8%. During the same three days yesterday, Eurostoxx was down 10%. Market poetry at its best, and yes, this time was different.
The fallacy of the great Bull
As investors finally seem to be realizing the reality, let’s review the bull argument. The Trader has been arguing that the perceived bull is larger than the actual bull. By that we mean, majority of indices have not performed as well as one might read in the main stream media. In Europe the DAX has performed relatively well this year, but there are many other indices actually trading in negative territory. But not the broader indices, or?
No the Eurostoxx 50 is still up on the year, but diminishing. The point is, if you didn’t catch the first couple of weeks in Januaey, you are down on many indices, especially the Spanish Ibex, but also the Eurostoxx 50 and the Italian MIB. Once again, the real bull is not as strong as one might believe.
Chart below.
Remember the 70s/80s? Middle East tensions, inflation, rising interest rates, high oil/gold price. But all is fine, this time is different. Must read Things that make you go hmmm report.
Despite the fact the LTRO has managed to avert Europe from turning into a full blown banking crisis, and Jim O’Neill’s bullish tones, we need to be looking forward in order outline potential dangers we could be facing in future. Geopolitics in the Persian Gulf and that US Debt could be the next thing to be focusing on. Greece defaulting is yesterday’s news.
Another must read “things that make you go hmm” report. Courtesy Grant Williams.
After his election in 2005, Ahmadinejad set about lifting the suspension on Iranian urani- um (try saying THAT five times quickly) enrich- ment and that brought him into direct conflict with the UN who adopted a whole bunch of resolutions, and George W. Bush who signed yet another Executive Order (13382 for those keeping score) freezing yet more Iranian as- sets.
Finally, on June 24, 2010, the US decided that the whole Executive Order thing was getting out of hand and so Barack Obama signed into law the Comprehensive Iran Sanctions, Ac- countability, and Divestment Act of 2010 (CIS- ADA) which, amongst other things, enhanced restrictions on the import from Iran of rugs, pistachio nuts and caviar.
But from the outset of sanctions against Iran in 1979, it was crude oil and gold that were af- fected the most. The chart, above, shows the oil price which, having begun to recover from the 1973 Arab embargo, spiked viciously as first the Iranian revolution that deposed the Shah then the stand-off with the US and finally the onset of the war with Iraq combined to send the price from a (then) already high $38 to a previously inconceivable $70.
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