June 17, 2024

Asia Optimistic as Tapering Pushed Back

JAKARTA — A wave of relief swept across Asia on Thursday after the Federal Reserve decided to maintain its pace of monetary stimulus, as investors and governments concluded that the financial environment for emerging markets would be less harsh than expected in coming months.

Currencies and stock markets across the region rose as short-term interest rates held steady in the United States and long-term interest rates actually dipped there, making it more attractive to put money into higher-yielding investments in developing countries for at least a few more months. Some of the biggest market increases took place in Indonesia, which has tended to be the emerging market most affected by Fed decisions over the years and the country hardest hit by traders over the past couple of weeks. The Jakarta stock exchange rose nearly 5 percent by midday, and the rupiah gained 2 percent against the dollar.

The Bank of Indonesia cautiously welcomed the Fed’s decision.

“For us, this is a short-term relief,” said Difi A. Johansyah, the bank’s chief spokesman and the chief liaison to Parliament and the rest of the Indonesian government.

“They reduce some of the pressures for capital outflows and reduce the pressure on the rupiah for the time being, but we have to work on our homework to stabilize the rupiah. The root of the problem is domestic, the current account deficit and inflation,” he said in an interview at the central bank’s headquarters seven hours after the Fed’s decision.

The Fed’s action also gave India some breathing room. The rupee was the worst performer of the world’s 78 internationally traded currencies in August but has started to recover this month. The Mumbai stock market increased 2.9 percent by midday, and the rupee climbed 2.4 percent against the dollar.

“If liquidity flows to emerging markets revive, those economies that have suffered the most — India, South Africa, Turkey, Indonesia and Brazil — stand to gain,” said Ajay Bodke, the head of investment strategy and advice at Prabhudas Lilladher, a brokerage firm based in Mumbai. “It also increases the maneuverability that the new Reserve Bank of India governor has in charting his medium-term course for the monetary policy.”

The new governor, Raghuram Rajan, a former chief economist of the International Monetary Fund and chief economic adviser to the Indian government, took office in Mumbai on Sept. 4 and plans to release his first statement and news conference on monetary policy on Friday. At his inaugural news conference on his first day in office, he stuck to banking deregulation.

Although India and Indonesia have attracted the most attention in recent weeks among emerging economies, other countries’ stock markets and currencies also rallied strongly on Thursday. The Hang Seng Index closed 1.7 percent higher in Hong Kong and the Nikkei 225 closed up 1.8 percent in Tokyo.

The indexes in Thailand and the Philippines rose more than 3 percent, and the S.P./ASX 200 index in Australia rose 1.1 percent. European stock markets also rose early Thursday. The FTSE 100 rose 1.4 percent soon after trading opened in London, and the main indexes in Germany and France rose 1.2 percent.

Among currencies, the Philippine peso and Korean won rose 1 percent against the dollar, while the Malaysian ringgit climbed 2.1 percent. The Japanese yen weakened 0.4 percent against the dollar as investors shifted money out of industrialized countries like Japan and back into emerging markets.

The big questions now are: How long a respite has the Federal Reserve taken before starting to taper its program of monetary stimulus, and how much damage may have already been done to emerging economies over the past several months by market volatility and capital flight? Most economists regard Fed tapering as inevitable, and still probable in the coming months.

The emerging economies facing the biggest challenges in recent months have been wrestling with broadly measured trade deficits equal to several percent or more of their annual output. They have relied until now on foreign investment to pay for these deficits as well as to finance interest payments on foreign borrowing, making them especially vulnerable to capital outflows that have reached tens of billions of dollars over the summer.

Falling emerging market currencies have also driven up the cost of commodities like oil that are priced in dollars.

“If the weakness of the rupiah lasts a longer time, it will create imported inflation,” Mr. Johansyah said.

Neha Thirani Bagri contributed reporting from Mumbai and Bettina Wassener from Hong Kong.

Article source: http://www.nytimes.com/2013/09/20/business/global/asia-optimistic-as-tapering-pushed-back.html?partner=rss&emc=rss

Wall Street Rises on Retailers’ Results

Stocks on Wall Street, snapping the year’s longest losing streak, rose on Tuesday on gains by Best Buy, J.C. Penney and other retailers.

In afternoon trading, the Standard Poor’s 500-stock index gained 0.6 percent, the Dow Jones industrial average added 0.3 percent and the Nasdaq composite was 0.8 percent higher.

Gains accelerated in the afternoon led by large-cap technology stocks, including Intel and Cisco Systems, which briefly lifted the Nasdaq composite index more than 1 percent.

But United States Treasury bond yields, although down from Monday, were still at two-year highs, encouraging investors to dump riskier assets like stocks and buy government debt. The yield on the benchmark 10-year note dipped to 2.83 percent on Tuesday from 2.88 percent on Monday.

Investors are now awaiting minutes of the most recent meeting of the Federal Reserve’s policy makers. Those minutes, to be released on Wednesday, could help investors better understand the mind-set of policy makers as they consider weaning the world’s biggest economy off the Fed’s so-called quantitative easing program.

“Stocks are rebounding today but we are seeing a lot of market swings because of the concerns on Fed tapering, so I wouldn’t be surprised if we ended flat or lower by the end of the day,” said Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research in Austin, Tex.

Best Buy, Home Depot and J.C. Penney led a string of retailers posting results, sending their shares up in early trading. Consumer-focused shares had recently been battered as many earlier reports on retailers’ sales failed to impress investors.

Intel shares were up 1.4 percent, while Cisco Systems jumped nearly 1 percent.

Europe’s main stock markets ended the day lower, mirroring concerns in other markets as expectations increased that the Federal Reserve would soon start tapering its stimulative bond purchases. London’s FTSE closed the trading session off 0.2 percent, the DAX in Frankfurt was 0.8 percent lower and the CAC 40 in Paris was down 1.4 percent.

The S.P. closed below its 50-day moving average for a second straight session on Monday and at its lowest level since July 8.

Shares in Home Depot, the world’s largest home improvement chain, opened higher before losing 0.2 percent by the afternoon. It raised its yearly outlook after posting a profit that beat analysts’ expectations.

Shares of Best Buy, the world’s largest consumer electronics chain, rallied more than 9.1 percent after it reported a higher quarterly profit.

The apparel retailer Urban Outfitters announced a quarterly profit that exceeded market estimates, and its shares gained 9.7 percent.

Shares in J.C. Penney, the beleaguered department store chain, gained 3.7 percent after it reported same-store sales fell 11.9 percent in the second quarter, during which it reverted to a promotions-heavy strategy to try to halt a sharp sales decline.

Article source: http://www.nytimes.com/2013/08/21/business/daily-stock-market-activity.html?partner=rss&emc=rss

Rift Over Austerity Plans Is Seen in Ailing Portugal

While the government of Prime Minister Pedro Passos Coelho has fended off collapse, for now, Portugal joins other crisis-hit euro countries left badly weakened by sharp divisions over the austerity approach and angry debates over how much more pain weary citizens can take.

The unexpected political turmoil in Lisbon, where two ministers resigned in two days, has rattled stock markets — Portugal’s main stock market index closed down 5.3 percent on Wednesday — and provided “another nail in the coffin of the current austerity approach,” said Simon Tilford, chief economist at the Center for European Reform in London.

“Portugal was one of the poster children for it, with a government that sounded even more wedded to austerity and supply-side reforms than the policy makers sitting in Brussels, Berlin and Frankfurt,” he said.

Though the Portuguese have followed the austerity path assiduously, they have not been alone in enacting the deep cuts to spending and public programs that proponents say are needed to get government books in order, and that opponents blame for stalling any semblance of recovery.

In Italy, the two-month-old coalition government of Prime Minister Enrico Letta, the product of a deadlocked Parliament, is badly split over the austerity issue, and is being kept alive less by consensus and more by its members’ fear of political extinction — as well as by Europe’s grudging acknowledgment that Italy is too big to fail and too big to bail out.

In Greece, the governing coalition of Prime Minister Antonis Samaras, the country’s third government since 2009, was significantly weakened last month when its third and smallest party, Democratic Left, withdrew its ministers to protest Mr. Samaras’s unilateral decision to shut down the state broadcaster as part of the cuts demanded by the nation’s creditors.

Even though this week’s upheaval in Lisbon can be seen as “a victory for the anti-austerity camp,” said Luis Cabral, a Portuguese economist who teaches at New York University, he suggested that the European policy debate would continue, as countries like France that have sought to steer away from drastic spending cuts fail to demonstrate that they have the capacity for the kind of government spending — what Mr. Cabral called “a Keynesian magic wand” — that will solve Europe’s economic problems.

The uncertainty in Portugal comes as officials from the so-called troika of international creditors, the European Commission, the European Central Bank and the International Monetary Fund, were scheduled to start a review of the country’s economic progress on July 15.

In May 2011, Lisbon negotiated a bailout with the creditors worth $101 billion, linked to an overhaul program that was meant to improve its economic competitiveness and end in June of next year.

Instead, Portugal has been stuck in one of Europe’s deepest and longest recessions, with an unemployment rate that has soared to almost 18 percent compared with 12 percent when Mr. Passos Coelho came to power two years ago.

While Mr. Passos Coelho has won considerable praise from the creditors for sticking to the terms of the bailout program, “the results have been seen in the financial markets, but not in the real economy,” said Pedro Santos Guerreiro, editor in chief of Jornal de Negócios, a Portuguese business newspaper.

As a result of the political chaos, Mr. Santos Guerreiro warned that there was a genuine possibility that Portugal would end up requiring another bailout, which “would be very hard for the Portuguese people who have been facing so much austerity, but would also mean defeat for the European Union and its rescue plans.”

Rachel Donadio contributed reporting from Rome, and Melissa Eddy from Berlin.

Article source: http://www.nytimes.com/2013/07/04/world/europe/rift-over-austerity-plans-seen-in-portugal-turmoil.html?partner=rss&emc=rss

Global Sell-off Shows Fed Reach Beyond the U.S.

In the weeks since the Fed’s chairman, Ben S. Bernanke, first indicated that the central bank might start to pare back its support for the economy, markets in Asia, Europe and Latin America have fallen even more sharply than those in the United States, threatening economic growth in many countries.

While leading market measures in the United States have declined 4 percent over the last month, an index of the world’s stock markets has slumped more than 6 percent.

“The Fed isn’t just the U.S.’s central bank. It’s the world’s central bank,” said Mark Frey, the chief strategist at the Cambridge Mercantile Group.

The selling picked up in markets around the world on Thursday, a day after Mr. Bernanke’s latest comments on the Fed’s plan to wind down the stimulus. While the reason for the shift by the Fed is good — a strengthening of the recovery in the United States — investors are nervous that the global economy may not be ready.

The prospect of slowing economic growth and rising interest rates set off waves of volatile selling on markets around the world. In the United States, the benchmark Standard Poor’s 500-stock index fell 2.5 percent on Thursday, its steepest one-day decline since November 2011. Treasury prices also slumped, driving yields, which move in the opposite direction, to touch their highest levels in nearly two years.

The yield on the 10-year Treasury — a benchmark for mortgages and other consumer rates — rose as high as 2.47 percent before settling at 2.42 percent. Gold, once a favorite of investors, slid to two-and-a-half-year lows.

The damage was more pronounced in a wide array of markets outside the United States, like Philippine government bonds and the Norwegian currency. Stock indexes in China, Europe and Mexico fell more than 3 percent.

Investors were also rattled by reports that Chinese banks had become reluctant to lend to one another. And Europe’s debt woes came into focus again after the International Monetary Fund said it was considering suspending aid to Greece. But traders and investors cited the Fed’s changing policies as the main driver behind the big flows of money around the world.

“The trigger was clearly what is going on with the Fed,” said Ashish Goyal, the investment director at Eastspring Investments in Singapore.

The heavy selling is a sharp reversal after years when low interest rates in the United States encouraged investors to put their money into foreign countries. For investors in once-attractive foreign markets, the fear is that those markets may be on even less firm economic footing than the United States’, and consequently less able to absorb the decline in lending that comes along with rising interest rates.

“When the U.S. embarks upon policies that are appropriate for its own domestic circumstances, it can impose policies on the rest of the world that aren’t necessarily appropriate to them,” said Darren Williams, the senior European economist at AllianceBernstein in London.

Interest rates are a vital determinant and indicator of economic activity. To try to encourage borrowing and bolster the economy after the financial crisis, the Fed has pushed rates down by cutting the interest rates it offers banks and by buying more than $2 trillion of bonds. The extent of the intervention has put markets on a hair trigger for any hint of a change from the Fed.

Mr. Bernanke has indicated that the Fed will pare its bond purchases only very slowly and may increase them again if there are signs the economy is being hurt. That has some analysts calling this week’s market turmoil a panicked overreaction. For the year, the S. P. 500 index is still up 11.4 percent.

But there are significant concerns that the Fed may not be able to control the convulsions in the markets that Mr. Bernanke has already set off with his comments.

“It’s a very significant moment,” said Sebastian Galy, a foreign exchange strategist at Société Générale. “It’s the end of an extremely aggressive phase of monetary policy globally.”

Peter Eavis contributed reporting.

Article source: http://www.nytimes.com/2013/06/21/business/economy/global-sell-off-shows-fed-reach-beyond-the-us.html?partner=rss&emc=rss

Off the Charts: S.&P. Has More Than Doubled Under Obama

Through Friday, more than 52 months after he took office, the index was up 105 percent during his term in office, for a compound annual gain of 18 percent.

There is, of course, more than a little good fortune in that statistic. Mr. Obama took office on Jan. 20, 2009, in the middle of a credit crisis that had caused prices to plunge and would cause them to keep falling for a few more weeks. It helps to start from a very low level. It also helps to have a central bank that drove short-term interest rates to zero, a step that both increased corporate profits and made bonds less attractive investments.

In fact, the United States stock market fell from record high levels this week, and world markets quavered, in part because of comments made by the Federal Reserve chairman, Ben Bernanke, that the Fed might be able to begin to back off from its aggressive monetary stance later this year.

Even with this week’s dip, however, the United States market has done better since early 2009 than any of the next nine largest economies in the world, as can be seen in the accompanying charts. Those charts reflect MSCI indexes, based in dollars, in each country except the United States, where the S. P. 500 is used.

The United States market lagged many others early in the recovery. But as its economy kept growing, albeit slowly, and European economies faltered and worries grew that emerging economies might experience slower growth, the American market overtook the others.

Of the next nine — ranked on the size of the economies in 2009, only India’s market came close to the performance of the United States market since early 2009. Like the Chinese and Brazilian markets, it excelled early on but is now well below the peak it hit in 2011.

If you put your dollars into the Italian or Spanish stock markets when Mr. Obama took office, your shares would now be worth less than you paid for them. Over all, the world’s stock markets outside the United States have risen less than two-thirds as much as the American one has.

The Wall Street performance has not made Mr. Obama particularly popular among financiers. Indeed, some of the language about the president’s perceived support of socialism and hostility to capitalism during last year’s campaign was the harshest seen in any campaign since 1936, when Franklin D. Roosevelt was seeking a second term and was strongly opposed by many financiers.

By the time Mr. Roosevelt died in 1945, the S. P. 500 was 141 percent higher than it had been when he took office. But he was in office so long that the annual rate of gain was only 7.5 percent, less than half of the rate so far for the Obama administration.

The other presidents whose term in office included a doubling in the S. P. were Dwight D. Eisenhower, Ronald Reagan and Bill Clinton. Each served two full terms, and none came close to the average annual gain so far under Mr. Obama. Mr. Clinton’s 15.2 percent was the highest of that group. He had the good fortune to enter office when markets were relatively low and to leave just as the technology stock bubble was starting to collapse.

There is, of course, no guarantee that a market that rises will endure. Mr. Roosevelt’s record would be better if he had left after one term in office; the market was lower when he died in 1945 than it had been when he took the oath of office in 1937 for his second term.

And the president with the best stock market record in the 20th century — using the Dow Jones industrial average, whose history is longer than that of the S. P. — is Calvin Coolidge. The Dow rose 256 percent — an annual rate of 25.5 percent — from his inauguration in 1923 until he left office in early 1929. The market went up an additional 20 percent before the crash. But by the end of 1931 all of the Coolidge gains had been lost.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/05/25/business/economy/sp-has-more-than-doubled-under-obama.html?partner=rss&emc=rss

DealBook: Market Delay in Chicago Points Again to Technology

A trader at the Chicago Board Options Exchange in March. Traders said Thursday's delay made the exchange unusually quiet.Scott Olson/Getty ImagesA trader at the Chicago Board Options Exchange in March. Traders said Thursday’s delay made the exchange unusually quiet.

9:24 p.m. | Updated

Trading on the nation’s largest options exchange was delayed for several hours on Thursday because of computer problems, the latest incident to highlight the vulnerability of markets to technological shocks.

The Chicago Board Options Exchange, which normally begins trading for most of its products at 9:30 a.m. Eastern time, returned to normal operations by early afternoon. But brokers who typically trade tens of thousands of options each day through the exchange sat on the sidelines for much of the morning.

The exchange trades options based on the Standard Poor’s 500-stock index and the VIX index, a popular barometer of investor sentiment about volatility in United States stock markets. The contracts are important tools among investors seeking ways to hedge their stock holdings.

The system failure was the second instance this week of technology intruding into the markets. Earlier this week, a message from The Associated Press’s Twitter account falsely reported explosions at the White House, causing the Dow Jones industrial average to plunge nearly 150 points in two minutes. The markets rebounded quickly after The A.P. said its account had been hacked.

Also, the market debut of Facebook was botched last May, and a blowup at Knight Capital rattled the markets and nearly toppled the firm.

In today’s rapid-speed electronic trading world, where high-frequency traders zip in and out of stocks and futures at speeds that are faster than the blink of an eye, the nation’s exchanges have sometimes struggled to keep up. Probably most famous is the “flash crash” of May 2010 that sent the Dow into a tailspin. It took regulators months to figure out how what caused the index, already down more than 300 points, to suddenly drop like a stone to a 1,000-point loss before recovering much of that within 20 minutes.

The malfunction in Chicago stoked fear again among regulators and reignited concerns about the market’s vulnerability to broader shocks.

“The recurrence of technology glitches in markets means we need not blindly accept that the whiz-bang machinery will always work as well as it should have,” said Bart Chilton, a regulator at the Commodity Futures Trading Commission. “On the contrary, we need to open our eyes to that fact.”

A news release from the exchange said the cause of delay was “an internal systems issue and not the result of any outside influence.” The exchange has told authorities that the problem stemmed from a “bug” in its computer software, said a person briefed on the matter who was not authorized to speak publicly. Although the exchange is still searching for the source of the problem, the person said, it assured authorities that it did not expect a repeat of the problem on Friday.

Analysts said while investors could find alternatives to S. P. 500 options, few good alternatives were available for the VIX index.

The first notice that something was awry at the exchange came soon after 8 a.m. Eastern time, when the exchange’s system said that some users were experiencing “issues” downloading certain products. The exchange delayed its opening, expecting to start trading about 10:15 a.m., according to notices sent to traders.

That opening never happened. For several hours the exchange could not provide an expected opening time. Finally, more than three and a half hours past its usual opening, the exchange said all trading would begin at 1 p.m. About a half-hour later, the exchange reported all systems were operating normally.

Justin Kaechele, a trader for BFL Trading, said he received news that the system was down minutes before trading was supposed to begin.

“A lot of companies had some trades planned at that time,” he said. “I don’t know what happened with those, but we had some unhappy customers.”

With nothing to do, traders said they made small talk about various things: sports, the headaches of buying a home, the rising cost of sending their children to private school.

Brian Gilbart, a trader for Belvedere Trading, said the absence of continuous action that normally filled the room could be strongly felt.

“It was eerily quiet,” he said. “The most quiet I’ve ever heard it.”

In an industry where every minute is an opportunity to make more money, the lost time was frustrating. “I think everybody’s mad,” Mr. Gilbart said when asked to describe the mood inside. “Brokers probably lost business.”

Observers said although the failure most likely idled investors trading the volatility index in the morning, it was fortunate that the equity markets were relatively quiet and stable.

“We would be having a very different conversation if the S. P. 500 was down 50 points or more,” said Mark Sebastian, the chief operating officer of Option Pit, an educational and consulting firm. “It is kind of a slow day, so this wasn’t a big deal.”

As the problems in Chicago emerged on Thursday, the Securities and Exchange Commission mobilized its “market event response team” in Washington, a collection of experts at the agency who monitor trading mishaps in real time, according to officials briefed on the matter. Concerns grew at the agency as the exchange failed to get back online.

“The S.E.C. staff became aware of the situation just before the opening this morning and has monitored developments throughout the day, as is our practice,” John Nester, an agency spokesman, said Thursday. “The commission staff will continue to consult closely with the C.B.O.E. to understand the precise reason for the trading interruption and remediation measures.”

The commodities agency also spoke to exchange employees, the officials said. But the agency stepped aside upon learning that the problems did not affect the futures side of the business.

The incident comes at a difficult time for the Chicago platform, as the S.E.C. increases its scrutiny of the nation’s largest exchanges. The S.E.C. is already investigating the exchange for not properly policing the markets. By Thursday afternoon, the officials said, the agency’s enforcement unit had not opened an investigation into the system problems.

Steven Yaccino contributed reporting from Chicago.

This post has been revised to reflect the following correction:

Correction: April 26, 2013

An earlier version of this post misspelled the name of a trader at Belvedere Trading. He is Brian Gilbart, not Brian Gilbert.

Article source: http://dealbook.nytimes.com/2013/04/25/system-failure-delays-options-exchange/?partner=rss&emc=rss

DealBook: Price of Gold Takes a Flashy Fall; Other Markets Follow

9:02 p.m. | Updated

Gold prices tumbled 9 percent on Monday, the sharpest drop in 30 years, heightening fears that investors’ faith in the safe haven has been shattered.

The steep fall in gold, after a slump on Friday, led a broader sell-off in commodities and stock markets. The Standard Poor’s 500-stock index declined 2.3 percent — its sharpest one-day decline since early November. Crude oil prices fell to under $90 a barrel, and copper dropped to a 17-month low.

The catalyst was disappointment over Chinese growth, which has been a bright spot in a global economy marred by uneven recoveries and Europe’s persistent debt problems.

A report on Monday showed that Chinese economic growth unexpectedly slowed to an annual pace of 7.7 percent in the first months of the year, from 7.9 percent at the end of 2012, suggesting that China’s demand for industrial materials would soften.

Weak regional manufacturing data in the United States also weighed on the United States stock market, as did the explosions in Boston later in the day.


Still it was gold that took the market spotlight on Monday.

The price of the metal has been undergoing an extraordinary reversal from a decade-long rally. Since reaching a high of $1,888 an ounce in August 2011, gold has been on a downward slope. The decline picked up pace on Friday, when gold fell 4 percent, officially taking it into a bear market, which is defined as a 20 percent drop from its recent high.

The damage worsened on Monday, when the price of an ounce of gold dropped 9.35 percent, or $140.40, to $1,360.60 for the April contract — the sharpest such one-day decline since February of 1983.

A number of banks, including Goldman Sachs, have recently lowered their forecasts for gold. But the recent drop has been greater than even the most pessimistic predictions.

“We’ve traded gold for nearly four decades and we’ve never … ever… EVER… seen anything like what we’ve witnessed in the past two trading sessions,” Dennis Gartman, a closely followed gold investor, wrote to clients on Monday.

The shift in gold’s fortunes presents a moment of reckoning for many so-called gold bugs, who had expected their financial lodestar to continue moving up in response to the Federal Reserve’s effort to stimulate the economy through bond-buying programs.

The assumption among gold bugs was that the flood of new money would cause inflation, making hard assets like gold more attractive. So far, though, there have been few signs of inflation taking root even as central banks in Japan and Europe have begun their own aggressive bond-buying programs.

“Gold has had all the reason in the world to be moving higher — but it hasn’t been able to do it,” said Matt Zeman, a metals trader at Kingsview Financial. “The situation has not deteriorated the way that a lot of people thought it could.”

The recent drop in gold prices has been partly attributed to signals from powerful members of the Fed that the central bank may begin to wind down its bond-buying programs. But the list of reasons to sell gold grows longer by the day. European politicians have indicated that Cyprus may need to sell off some of its gold holdings to pay for its bank bailout, which could lead other countries to do the same.

The market decline, like the decade-long run-up, has also been attributed to the new financial instruments that have made buying gold easier for a wide array of investors. The most prominent products are gold exchange-traded funds, which can be traded on stock exchanges, and which together hold as much gold as all but a few of the world’s largest central banks.

Hedge funds have used gold E.T.F.’s to gain exposure to the precious metal, but have been selling them off en masse in recent weeks. The largest such exchange-traded fund, with the ticker symbol GLD, had its most active day ever on Monday.

“The exits are only so wide and there are too many people trying to leave all of the sudden,” said Bart Melek, a commodity strategist at TD Securities.

Many gold analysts have said that the demand for physical gold is stronger than the demand for financial products linked to gold, like exchange-traded funds and futures contracts. But this has not been enough to prop up the market.

On Monday, the most obvious catalyst for the carnage was the disappointing Chinese economic data that led to talk that China will no longer need the same physical resources to expand.

In the commodities world, this did not hurt only gold. Silver dropped over 12 percent, platinum 5.6 percent and the benchmark oil contract was down 3.9 percent. Stock indexes fell 1.5 percent in Japan and 0.6 percent in England.

The S. P. 500 dropped 2.3 percent, or 36.49 points, to 1,552.36 on Monday. The Dow Jones industrial average closed down 1.8 percent, or 265.86 points, at 14,599.20. The Nasdaq composite index fell 2.4 percent, or 78.46 points, to 3,216.49.

In the bond market, interest rates fell as investors shifted their money to less risky assets. The price of the Treasury’s 10-year note rose 9/32, to 10226/32, while its yield dropped to 1.69 percent, from 1.72 percent late Friday.

Article source: http://dealbook.nytimes.com/2013/04/15/golds-plunge-shakes-confidence-in-a-haven/?partner=rss&emc=rss

Broad-Based S.&P. 500-Stock Index Ends at Record High

The most widely followed barometer of the United States stock market rose above its 2007 peak to hit a high on Thursday, while most of the rest of the world could only look on in envy.

The nominal record set by the Standard Poor’s 500-stock index is the latest sign that the American economy is recovering some of the strength it had before the financial collapse of 2008, partly helped by stimulus from the Federal Reserve.

It has been a little more than three weeks since the Dow Jones industrial average hit a milestone high, also set in October 2007, but the S. P. is considered more representative of the breadth of American stocks.

The S. P. reached its new nominal high after several days of flirting with the record as investors struggled with the turmoil caused by Cyprus’s banking crisis. The milestone capped a strong first quarter, in which the index rose 10 percent to hit the high.

Meanwhile, stock markets in nearly every other large economy around the world are still well below their records. An index of the entire world’s stock market, without the United States, is still down about 29 percent from the level it hit in 2007, according to an analysis by Ned Davis Research. Only some smaller nations, such as Denmark, Mexico and Colombia, have fully recovered their losses.

Workers in the United States have learned that the stock market’s performance is not always a good gauge of the underlying economy’s strength. Unemployment in the United States has remained stubbornly high at the same time that share prices have risen since bottoming out in March 2009. Even with the record level, the S. P. 500 is still not back to its 2007 level when inflation is taken into account.

Still, the performance of the American stock market would have seemed improbable during the depths of the crisis, given that it was financial markets in the United States that led the global economy into recession. Strategists and economists have said that the divergence since then is largely a result of the relative speed with which the United States government and corporate sector responded to the causes of the 2008 crisis.

“The U.S. addressed the problems of the financial crisis faster and with much more ferocity than the rest of the world,” said Edward M. Clissold, a market strategist at Ned Davis Research.

The S. P. 500 finished Thursday up 0.4 percent, or 6.34 points, at 1,569.19. The Dow Jones industrial average climbed 0.4 percent, or 52.38 points, to 14,578.54. That is 11 percent above its level at the beginning of the quarter.

The Nasdaq composite index rose 0.3 percent, or 11 points to 3,267.52, far below the heights it reached during the dot-com boom in 2000.

Economists have given much of the credit for the market’s recovery to the Fed, which worked quickly with the rest of the federal government to bail out and revamp the nation’s banks and financial system, which the European Central Bank started doing in earnest only last year. While bank bailouts remain contentious, they have allowed the institutions to resume lending.

The Fed also acted on its own to pump money into the economy with bond-buying programs known as quantitative easing. Many central bankers around the world worried that those programs would result in extreme inflation. There are also fears that the American economy will not be able to remain on its current trajectory once the Fed draws back. But all that has not stopped other countries from beginning to copy the Fed’s lead.

“The Fed has won the battle, and continues to win the battle,” said Jack Malvey, the chief global markets strategist at BNY Mellon.

In Japan, the government of Prime Minister Shinzo Abe was elected last December after promising a more aggressive approach to monetary policy. Japan’s Nikkei index has been the best performer of any of the world’s large stock markets in the first quarter of this year, rising 19 percent. That still leaves the Nikkei almost 68 percent below the heights it scaled in 1989 before Japan’s real estate market soured.

Article source: http://www.nytimes.com/2013/03/29/business/daily-stock-market-activity.html?partner=rss&emc=rss

Strategies: If Stocks Look Irresistible, Don’t Forget to Diversify

“This is one of those moments,”said Louis S. Harvey, the president of Dalbar, a research firm in Boston. “It’s one of those times we warn about year after year.”

Mr. Harvey has been documenting inconsistencies in investor behavior for more than two decades, and he was one of the first people I called last week for some expert perspective on the exuberant stock market.

The Dow Jones industrial average set a new closing record on Tuesday — and climbed even higher the next day, and the next day, and again the next. The Dow has risen nearly 10 percent in this young year alone. In the four years since stocks hit bottom in March 2009, their prices, on average, have more than doubled.

Already, fund flow data suggest that people who were frightened away from stocks after the catastrophe of 2008 have begun buying again this year. And no wonder. The stock market has been a marvel to behold.

What would Mr. Harvey tell someone who wants to start buying now, after sitting on the sidelines for the last four years?

“I’d say, if you can reliably predict where the market’s going, then jump in feet first — just buy, buy, buy,” he said. “But if you don’t know what the future will be,” he added, caution is the wiser course. Before plunging into the market, he said, “make sure that you select a reasonably defensive asset allocation strategy first.”

If stocks are irresistible to you, set up a balanced and diversified portfolio containing many different stocks and bonds, he continued. “The most important thing, once you have a strategy,” he said, “is to find a way to actually stick with it.”

He has seen soaring stock markets before, and, for the typical mutual fund investor, they have often gone badly. When the market is already high, Dalbar has found, many people start to buy. When it’s already fallen, they sell.

The dismal truth is that over the long run, the average person is a woeful investor, regularly losing money to more skillful traders. Dalbar performs an annual survey of actual investor returns in mutual funds, and compares them to the return of the overall market. He shared the latest, still unpublished figures with me. They tell a sorry story.

Over the last 20 years through December, the average return of all investors in United States stock mutual funds was 4.25 percent, annualized. Over the same period, the benchmark Standard Poor’s 500-stock index returned an annualized 8.21 percent. That’s a huge gap — nearly four percentage points a year over two decades.

I ran the numbers. A $10,000 investment at 4.25 percent would be worth $22,989 in 20 years. An investment in the S. P. 500, at 8.21 percent, would be worth $48,456. The difference is a sobering $25,467.

Why is the gap so wide? One reason is that after fees and expenses, the average mutual fund manager doesn’t beat the overall stock market, as many studies have shown. But that explains only part of the problem. The rest of it, Mr. Harvey said, is that investors themselves “move their money in and out of the market at the wrong times.”

“They get excited or they panic,” he added. “And they hurt themselves.”

It’s not that stocks are a bad idea in themselves. Holding a diversified group of stocks — along with a broad collection of bonds — has paid off for most long-term investors, Mr. Harvey and a large majority of strategists say. Stocks have outperformed bonds over the long term, while bonds have provided steady income and more reliable day-to-day returns.

Combining stocks and bonds, maybe with other assets, can create a less volatile portfolio, letting an investor sleep more peacefully. The question for most people isn’t whether to own stocks. It’s how to allocate them intelligently, as well as when to buy.

I asked Ed Yardeni, an independent economist and market strategist who has been bullish on stocks for four years, whether it makes sense to start buying now. “Obviously, it would’ve been better to buy them in March 2009,” he said. “But buying now still makes sense if you believe we’re in a secular bull market” — a market that will keep rising for a long time.

Mr. Yardeni assigned what he called “a subjective probability” of about 60 percent to that optimistic outcome. He said factors like growing energy independence in the United States and a “technological revolution that has never stopped” could help propel the domestic economy forward, bolstering corporate earnings growth and providing fundamental support for stocks. For the short term, he said, the expansive monetary policy of the Federal Reserve and other central banks is acting as a tonic for the stock market, and fear of disaster in Europe has abated.

Article source: http://www.nytimes.com/2013/03/10/your-money/if-stocks-look-irresistible-dont-forget-to-diversify.html?partner=rss&emc=rss

Corporate Profits Soar as Worker Income Limps

That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high.

With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

The result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

These factors, along with the Federal Reserve’s efforts to keep interest rates ultralow and encourage investors to put more money into riskier assets, prompted traders to send the Dow past 14,000 to within 75 points of a record high last week.

While buoyant earnings are rewarded by investors and make American companies more competitive globally, they have not translated into additional jobs at home.

Other recent positive economic developments, like a healthier housing sector and growth in orders for machinery and some other durable goods, have also encouraged Wall Street but similarly failed to improve the employment picture. Unemployment, after steadily declining for three years, has been stuck at just below 8 percent since last September.

With $85 billion in automatic cuts taking effect between now and Sept. 30 as part of the so-called federal budget sequestration, some experts warn that economic growth will be reduced by at least half a percentage point. But although experts estimate that sequestration could cost the country about 700,000 jobs, Wall Street does not expect the cuts to substantially reduce corporate profits — or seriously threaten the recent rally in the stock markets.

“It’s minimal,” said Savita Subramanian, head of United States equity and quantitative strategy at Bank of America Merrill Lynch. Over all, the sequester could reduce earnings at the biggest companies by just over 1 percent, she said, adding, “the market wants more austerity.”

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966. In recent years, the shift has accelerated during the slow recovery that followed the financial crisis and ensuing recession of 2008 and 2009, said Dean Maki, chief United States economist at Barclays.

Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.

“There hasn’t been a period in the last 50 years where these trends have been so pronounced,” Mr. Maki said.

At the individual corporate level, though, the budget sequestration could result in large job cuts as companies move to protect their bottom lines, said Louis R. Chenevert, the chief executive of United Technologies. Depending on how long the budget tightening lasts, the job cuts at his company could total anywhere from several hundred to several thousand, he said.

“If I don’t have the business, at some point you’ve got to adjust the work force,” he said. “You always try to find solutions, but you get to a point where it’s inevitable.”

The path charted by United Technologies, an industrial giant based in Hartford that is one of 30 companies in the Dow, underscores why corporate profits and share prices continue to rise in a lackluster economy and a stagnant job market. Simply put, United Technologies does not need as many workers as it once did to churn out higher sales and profits.

Article source: http://www.nytimes.com/2013/03/04/business/economy/corporate-profits-soar-as-worker-income-limps.html?partner=rss&emc=rss