Monday, September 21, 2009

Market in a Minute, September 21, 2009

Presented by Alan Favre, CFP
Authored by Partick Adams, CFA

Our position on the market is, sentiment is very much tilted to too many bulls, valuation is not excessive but is full, the market is overbought, and GDP growth will slow after the 3rd quarter. We could avoid a correction but the odds are against it.

Retail Sales reported last week were a lot stronger than consensus expectation. We believe this trend will begin to slow. The reason we believe this to be the trend going forward because the Baltic Exchange Dry Index is down 42% since June, kind of funny China is relying on the U.S. for growth and we are relying on China…there is not much of a recovery.

The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the Index tracks worldwide international shipping prices of various dry bulk cargoes.

The index provides "an assessment of the price of moving the major raw materials by sea.

Every working day, the Baltic canvasses brokers around the world and asks how much it would cost to book various cargoes of raw materials on various routes (e.g. 100,000 tons of iron ore from San Francisco to Hong Kong, or 1,000,000 metric tons of rice from Bangkok to Tokyo).

The index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand). 

The supply of cargo ships is generally both tight and inelastic - it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the Arizona desert. So marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash rates..." The index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal, crude oil, metallic ores, and grains. 

Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity.

Because it provides "an assessment of the price of moving the major raw materials by sea," according to The Baltic, "... it provides both a rare window into the highly opaque and diffuse shipping market and an accurate barometer of the volume of global trade -- devoid of political and other agenda concerns." Source: Wikipedia

Index Performance
Index                            Price     Last Week     Year-to-Date
Dow Jones 30                9820         2.2%                11.9%
SP 500                          1068         2.5%                18.3%
NASDAQ                      2133        2.5%                 35.2%
Russell 2000                   618          4.1%                 23.7%
Russell 2000 Growth      2038         3.7%                 30.5%
Russell 2000 Value         3143         4.5%                 17.5%
Russell 1000 Growth      468           1.9%                 26.1%
Russell 1000 Value         556           3.1%                 14.1%
Source: Baseline, Returns are appreciation only.

S&P Sector Performance
Index                            Price      Last Week     Year-to-Date
Information Technology  336              1.6%                44.9%
Consumer Disc.             219               3.2%                29.5%
Consumer Staples          263               1.1%                  6.5%
Health Care                   335               0.3%                  8.2%
Financials                      204                4.5%                20.8%
Industrials                      238                3.9%                14.8%
Energy                          419                 2.8%                  8.4%
Telecommunications      108                 0.1%                 -3.5%
Utilities                          151                 3.6%                  2.0%
Materials                       193                 4.7%                40.4%
Source: Baseline, Returns are appreciation only.

Interest Rates
Fed Fund          0.25     5-Year      2.45
3-Month           0.08   10-Year      3.48
6-Month           0.19   30-Year      4.23
2-Year             0.98

Economic Events This Week
Date       Event                         Forecast     Previous
21-Sep    Leading Indicator           0.7%           0.9%
23-Sep    FOMC Rate Decision       -                 -
24-Sep    Initial Claims                  550K          545K
24-Sep    Existing Home Sales      5.35M         5.24M
25-Sep    Durable Orders             0.3%            5.1%
25-Sep    Michigan Sentiment      70.5             70.2
25-Sep    New Home Sales         440K           433K

Economic Events Last Week
Date           Event
15-Sep        The Core PPI for Aug. was 0.2% vs. forecasts of 0.1%
15-Sep        PPI came in at 1.7%, much higher than estimates of 0.8%
15-Sep        Retail sales rose 2.7% vs. expectations of 2.0%
15-Sep        Retail sales excluding auto was 1.1% vs. forecasts of 0.4%
15-Sep        Core CPI was up 0.1% which was in-line with expectations
15-Sep        CPI was 0.4% vs. estimates of 0.3%
16-Sep        Capacity utilization was 69.6% which was slightly better than forecasts of 69.1%
17-Sep        Building permits for Aug came in at 579K vs. estimates of 583K
17-Sep        Housing starts came in at 598K which was in line with expecations
17-Sep        Initial claims for the week of 9/12 were 545K, a little lower than forecasts of 555K
17-Sep        Philadelphia Fed number came in at 14.1 vs. consensus estimates of 8.0

J. Alan Favre, CFP

Managing Member
PEAK Wealth Management LLC
4600 S. Syracuse Suite 250
Denver, CO. 80237
Office: (303) 331-0123 ext. 100
Cell: (303) 907-3110
Fax: (303) 221-0950

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