Weekly Wrap: Exhausted Investors Look Ahead
Is it over yet?
It may be hard to believe, but US stocks were down less than 2 percent last week. Yup, after four gut-wrenching sessions, where stocks see-sawed by more than 4 percent on consecutive sessions, we ended up with a not too bad week, all things considered.
Before we turn to the more mundane issues of the week ahead, like housing (that, along with a credit boom and bust, started all of this back in 2008, if you recall) or inflation (which is not the biggest worry when we're talking about a global economic slowdown), here's what got us to this point.
- For weeks, there have been worries over a global economic slowdown. In the US, the government revised down growth estimates for the first half of the year to 0.8 percent, which is perilously close to 0 and is pretty rotten for a recovery.
- On top of the growth concerns, there is a real possibility that the European debt crisis could spread from the smaller economies of Greece, Portugal and Ireland, to some big ones like Italy and Spain. It's unclear whether the EU has the monetary capacity and political will to bail out these larger countries.
- Inept politicians on both sides of the Atlantic have compounded problems 1 and 2, leaving many with a very unsettling recognition: not even deep-pocketed governments seem to be able to cure what ails the global economy.
One big difference between the two scenarios is something called "recency bias"-that's the tendency to remember more recent events or observations more vividly and give recent information more weight than historical information...in other words, we're freaking out more today, because of what we lived through in 2008.
Stocks are down about 9 percent since the beginning of August and off 12-13 percent from the 2011 highs, last seen in the spring. Correction, yes but not yet a bear market.
- DJIA: 11,269, down 1.5% on week, down 2.6% YTD
- S&P 500: 1178, down 1.7% on week, down 6.3% YTD
- NASDAQ: 2507, down 1% on week, down 5.4 % YTD
- September Crude Oil: $85.38, down 1.7% on week (down 14.5% in 3 weeks)
- December Gold: $1742.60, up 5.5% on the week (up 22.5% on the year)
Total bank failures for 2011 = 64 (1 new bank failures over weekend)
FACTOIDS OF THE WEEK: 2008 vs. 2011
- US banks have 1/3 more capital on hand than in 2008
- US bank leverage is approximately 16:1, vs. 25:1 in 2008
- Non-financial companies in the S&P 500 are holding $1.12 trillion in cash and short-term instruments, up 59% from $703 billion in Q3 2008
IN THE WEEK AHEAD: Exhausted investors will turn to reports on housing and inflation this week, as well as Regional Fed reports, which could provide clues on any pick up in economic activity.
Mon 8/15:
8:30 Empire State Mfg Survey
10:00 Housing Market Index
Tues 8/16:
8:30 Housing starts
8:30 Import/Export prices
9:15 Industrial Production
Sarkozy & Merkel meet
Weds 8/17:
8:30 PPI
Thurs 8/18:
8:30 Weekly Claims
8:30 CPI
10:00 Existing Home Sales
Fri 8/19:
