A strengthening US dollar causing emerging market currencies to tumble, oil prices in free fall, Japan reporting its economic decline, and China, well, just say the word, “China.” Did I tag all of the reasons the market might be down today?
Aside from the above, we have more to look at this coming week, but do not be surprised if the market bounces around a bit, especially as we move closer to the end of the year. There might be some selling to pretty up the books for year-end and then, following that, there might be some “bargain” buying.
- Costco Wholesale (COST) will report its quarterly financial results as well as software company Adobe Systems (ADBE). Costco is hoping to impress investors again Wednesday morning after reporting an increase in comparable-store sales last quarter.
- On the weekly economic calendar, we watch for the JOLTS report, retail sales figures, the producer price index, and the consumer sentiment level.
I would say the big news of all the bad news is oil prices in free fall. We still have a ways to go before prices get to the Great Recession lows (2008-2009), but they are getting closer. Today, crude oil is looking to break $63 with a 3.7% drop.
Yes, this precipitous drop seems to be bad news for the market now, but that view will soon get lost in the increase in discretionary income for the consumers of the world. In fact, that reality is showing up in, well, China, the proverbial whipping boy for the market’s periodic declines.
- China’s trade surplus climbed to a record in November after an unexpected decline in imports on lower crude oil and other commodity prices.
Of course, the effects of the oil price declines are obvious (at least to logical folks), but sometimes, you just have to spell it out.
- The slide in oil prices to five-year lows offers China a double benefit as its leadership confronts the weakest expansion in a generation. The decline could boost economic growth and help keep inflation slow enough to give scope for further easing after last month’s interest-rate cut.
No, “could” is not the right word here. “Will” is the reality and, yes, it is true, the growth in China is the “weakest … in a generation,” but that is what the current regime is shooting for, and yes, the drop in oil prices for China will keep inflation in check, meaning, more help from the current regime.
- The decline in oil prices was driven by slower demand coupled with dramatic growth in oil-supply production, especially in North America and Canada.
And the above is reason to offer that oil prices will not stop falling. They could go as low as they did (and maybe lower) for WTI crude in 2008-2009, say, $41.68 on January 1, 2009 because the difference now is not oil speculators driving the price down with short selling; it is overproduction, lack of demand, and a major fight for market share resulting in a price war. Short selling will play a part, but before that happens, the speculators who believe this fall in oil prices is temporary will have to be cleaned out.
- Speculators boosted their net-long position in West Texas Intermediate crude by 14 percent in the week ended Dec. 2, the most in 20 months, U.S. Commodity Futures Trading Commission data show. Short bets contracted by 15 percent as long wagers expanded 4 percent.
I know, I know, but don’t believe hedge fund managers and investment bankers know any more about the future than anyone else who studies the market reasonably. They don’t.
- John Paulson’s [billionaire hedge fund manager] firm posted a 27 percent year-to-date loss in its event-driven fund after a 3.1 percent decline in November.
Mr. Paulson is not alone. We all are now familiar with Mr. Gross and his departure from the firm he founded because of major losses over the last couple of years.
- The average hedge fund eked out a 3.7 percent gain, according to Hedge Fund Research Inc. Lackluster performance has put pressure on the [hedge fund] industry with funds closing at the fastest pace since 2009.
Losses for the hedge fund industry are across the board, true, but bets on oil recovering have contributed mightily. So, my point is that just because hedge funds are betting on the price of oil going up does not mean it will. As I already wrote, the fundamentals suggest otherwise.
Anyway here is a question from a reader and my answer that might be helpful to those out there who are just beginning to try and figure out this game of chance called “the market.”
- Q: Where can I find definitions for dummies for the financial terms used most often? I have looked in various places, most use other terms and I wind up reading gobbledygook instead of a simple answer.
- A: Investopedia … Trading for Dummies … Investorwords.com.
Remember, the market needs and wants to rebalance. The fundamentals are still good, or bad, depending on your point of view. Just look at oil.
Trade in the day; invest in your life …
