Uninterrupted Declines
July 10, 2008
Hickey and Walters (Bespoke) submit:
If you’ve forgotten what a rally feels like, you’re probably not alone. The S&P 500 hasn’t had a 2% gain (in one day or over multiple days) since early June. In the top chart below, we show all periods where the S&P 500 went more than thirty days without a 2% rally. As shown in the chart, these uninterrupted declines are not too uncommon, as there have been 41 other periods since 1940. What makes this period more painful, however, is the magnitude of the declines during this stretch. Since June 5th, the S&P 500 has declined by 11.4% without a 2% rally in between (lower chart), which makes this the sharpest uninterrupted decline since February 2003. The drought of rallies, compounded by the fact that any rally is more than erased the next day, make this one #%$& of a market.
Bond Expert: A Sanguine View of Agency Paper
July 10, 2008
John Jansen submits:
Agency spreads have improved significantly from the blow out levels of earlier this morning. To be clear, I am referring to the spread at which benchmark Agency paper trades to similar benchmark treasury debt.The 10 year sector is actually 2 basis points tighter on the day and is 10 basis points to 12 basis points better than the widest levels of the day.
The 5 year sector is unchanged on the day and about 10 basis points better than the widest levels of the day.
Bond Expert: A Sanguine View of Agency Paper
Correlation of SPDR Sectors’ Implied Volilities
July 10, 2008
Bill Luby submits:
Wednesday, in The Impact of Financial and Energy Stocks on the VIX, I talked about the low (and sometimes negative) correlation between the SPX and some of the sectors represented in the index.
Correlation of SPDR Sectors’ Implied Volilities
10 Jul 2008 16:00:00 - Top 5 Stocks up on Unusual Volume
July 10, 2008
| Intraday Unusual Volume - Top 5 Up |
| Symbol | Volume % Change |
Price % Change |
News | |
| CPKI | 368% |  11.69% |
news | |
| CENX | 208% | 62.55% |
news | |
| MYGN | 202% | 57.95% |
news | |
| HITT | 190% | 34.08% |
news | |
| AIRM | 161% | 27.51% |
news | |
|
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10 Jul 2008 16:00:00 - Top 5 Stocks up on Unusual Volume
Household Spending on Fuel, Food and Drink
July 10, 2008
Mark J. Perry submits:
THE ECONOMIST — The soaring cost of food and fuel is a concern for the governments of rich and poor countries alike. Many households in Africa and Asia shell-out more on food and fuel as a share of total spending and so are disproportionately hit by rising prices.
Household Spending on Fuel, Food and Drink
Pessimism and Doom Our National Pastime: Flashback to the ’70s
July 10, 2008
Mark J. Perry submits:
Doom watching has of late become too much of a national pastime. It has afflicted far too many aspects of national policy: international relations, defense, natural resources, the economy, the environment, energy, etc. There has been pessimism, talk of inevitable decline, and of the twilight of democracy.
It is heady stuff. Entrapped by extrapolations and by rhetorical flourishes, it has too much affected the national mood. Yet, it too will be superseded. It is reminiscent of other periods of disenchantment. Yet, successfully to grapple with our problems, we shall have to diagnose them. Like Edmund Burke, two centuries ago, we are obliged to seek the sources of our present discontents. Yet we must avoid being swept up by the delights of diagnosis. We must assiduously avoid the seductive pleasures of making too much of our present discontents.
Pessimism and Doom Our National Pastime: Flashback to the ’70s
Chart of the Day: Anatomy of a Bear Market
July 10, 2008
Zubin Jelveh submits:
The S. & P. 500 "officially" entered bear market territory yesterday, meaning it’s dropped 20 percent the October 9, 2007 peak. The index has seen similar declines six previous times since 1950, and while previous performance won’t help us predict the future, it can at least be a guide.
The following chart shows the number of trading days it took the S. & P. 500 to hit bear market territory after reaching a peak, how long it took to go from the start of the bear market to a low, how long before it retraced its way back to the previous peak, as well as the percentage drop from peak to low:
Chart of the Day: Anatomy of a Bear Market
You Can’t Solve the World’s Problems with Your Portfolio
July 10, 2008
Roger Nusbaum submits:
Lot’s of chatter here and there about problems with Fannie (FNM) and Freddie (FRE) or, more correctly, an escalation of problems and a question of solvency.
I have to believe that the fear exceeds the reality; that is my starting point going in. Of course I could be wrong, and in the context of managing client portfolios, being right, or wrong, it doesn’t really matter.
You Can’t Solve the World’s Problems with Your Portfolio
Thursday Options Update: FRE, LEH, NLY, XLF, GE, EWH, XLP, SGR
July 10, 2008
Freddie Mac (FRE) – In some sense, it seems nothing short of a small miracle to see major indices trading modestly in positive territory, given scuttle out of the financial space that on another day might spark an across-the-board panic (indeed, we feel compelled to note here that the CBOE Volatility Index, which tends to trade inversely with the S&P 500, is also trading slightly higher and remains above a reading of 25). First out of the gate were remarks from St. Louis Federal Reserve President William Poole, who dropped explicit hints of a government-sponsored bailout of mortgage financiers Fannie Mae (FNM) and Freddie Mac. Shares in Fannie and Freddie predictably plummeted, with Freddie Mac shares now down 21% at $8.10, and implied volatility coming in about 24.5% higher at more than 218%. Front month option activity showed selling pressure at the July 10 line in both puts and calls, which could indicate traders selling volatility at these elevated levels – a treacherous strategy in the current news environment – and seemingly offset by two-way traffic in July 7.50 puts at the 5.00 and 7.50 strikes. Put spreaders appear to be out in force in the August contract between strikes 5 and 10.
Lehman Brotheres (LEH) – The market also received a no-bones reminder of the extreme flammability (not to mention staying power) of negative rumors in the brokerage space. Rumors that Pimco might suspend its trading activities with Lehman Brothers finally sent implied volatility in Lehman options rocketing near March 17 levels, up as much as 61% earlier this morning. The panic was quelled somewhat after a Pimco spokesman issued a statement that the firm was continuing to trade with Lehman, but implied volatility is still more than 25% higher at 150%, as Lehman shares dip 8.5% to set a new 52-week low of $18.09. With more than twice as many puts as calls, we’ve seen prodigious two-way traffic in July puts at the 20 strike and below, as the value of these positions doubled and redoubled during the panic. Fresh positioning extended into the August contract, most glaringly at the $10 strike, which traded on volume 4 times the open interest at around $1.00 per contract (up more than 138% from yesterday’s levels).
Thursday Options Update: FRE, LEH, NLY, XLF, GE, EWH, XLP, SGR
Sector P / E Ratios
July 10, 2008
Hickey and Walters (Bespoke) submit:
Many market participants continue to stress that estimated valuations for the market remains low, making equities attractive. The problem is that these are estimates, and until the actual earnings come through, it’s hard to go by analyst expectations, especially in this market environment.
While estimated valuations might be low, the trailing 12-month P/E ratio for the S&P 500 is not. As shown below, the trailing P/E for the index is currently at 20.54, and just a couple of weeks ago, it had risen to its highest levels in years. Even at 20.54, it is higher than it was when the market peaked in October.
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