Wall Street's best quarter for 11 years, 31/3.

'US stocks fell in the final session of the quarter as a disappointing report on private-sector jobs hit a swath of companies, including Home Depot and Kraft Foods, although energy companies such as Chevron climbed as the Obama administration proposed more offshore drilling.

'The Dow Jones Industrial Average fell 50.79 points, or 0.47 per cent, to 10,856.63. Still, it closed out the first quarter with a gain of 4.11 per cent, marking the measure's best first quarter since 1999 and its fourth-straight quarter in positive territory.

'For March, the Dow Industrials climbed 5.15 per cent, representing its best month since November. The DJIA is now up 65.82 per cent from its 12-year closing low hit in March 2009'.

Those with an appetite for history might care the read our preliminary account of the Crash of 1929, linked here.Australian equities underperforming as RBA acts against asset inflation, 29/3.

'AUSTRALIA is losing its reputation as one of the world's best-performing equities markets after starting 2010 on a slow note and being eclipsed by rallies in some countries badly damaged by the global financial crisis.

'After a 40 per cent rally in 2009, the Australian market will close the first quarter of 2010 just 20 points higher from the start of the year.

'The meagre 0.4 per cent gain has been overshadowed by a 2.37 per cent surge on the Dow Jones index in New York and a 3.11 per cent rally on the Japanese Nikkei. In London the FTSE 100 has gained nearly 4 per cent, even though the British economy remains troubled.

'The Australian dollar was also fairly steady in the first quarter. It started 2010 at US89.79c and has moved to US90.44c. The dollar's move through the US90c barrier recently prompted economists to speculate that it could soon reach parity with the US greenback.

'Australia's Reserve Bank remains one of the few central banks in the developed world to be tightening monetary policy'.

And there is housing, Australia's favourite asset class. RBA practicing open mouth policy to help stem the tide.

'RESERVE Bank of Australia Governor Glenn Stevens has warned against over excess in the property market and said official interest rates will push towards more normal settings as the economy improves.

'In his first televised interview, broadcast by the Seven Network this morning, the Governor said that with clear evidence the global recession has bypassed Australia, emergency policy settings in the form of low interest rates will not be needed'.

What goes up ..., 25/3.

'US stocks closed lower today, with telecommunications giants Verizon Communications and AT&T leading the decline on competitive worries, while energy companies including Chevron were hurt by declines in commodities as eurozone concerns weighed'.

Volatility is again on the rise, suggesting nervous markets.  Henry believes the current boom cannot go on, and is waiting for a healthy correction before increasing his holdings of resource stocks.

The Great Crash of 1929, 24/3.

There was no doubt that a collapse would come. ‘When prices stopped rising – when the supply of people who were buying for an increase was exhausted – then ownership on margin would become meaningless and everyone would want to sell. The market wouldn’t level out; it would fall precipitately’.

The next chapter in this saga will focus on the many suckers' rallies and the consequences of the entangled and interdependant falls in economic activity and stock prices.

Meanwhile, in now-time, Wall Street resumes its upward progress.

Markets hail US healthcare vote, 23/3.

It seems the immediate market response favours President Obama's healthcare victory, but this could of course change when traders think about the financial consequences.

'US stocks climbed to 17-month highs today as relief over the House's vote to approve the healthcare overhaul bill swept through the market, lifting hospital operators such as Tenet Healthcare and drug companies including Pfizer and Merck.

'The Dow Jones Industrial Average advanced 43.91 points, or 0.41 per cent, to 10,785.89, its highest close since October 1, 2008. Pfizer and Merck were among the Dow's best performers following the House's passage of the healthcare legislation.

'While the bill is expected to increase costs for a number of companies both in and out of the healthcare sector, the House's passage of it was seen as removing a big uncertainty that had been weighing on the market and healthcare stocks in particular'.

The coming asset deflation, plus goods and services inflation, 19/3.

The Daily Reckoning (DR) today said: 'Over in America the Dow Jones Industrials Index has closed at its highest level since October of 2008. The Dow sits at 10, 979 and has risen eight days in a row. Woop woop.

'--The volume figures on the Dow, however, show a disturbing lack of faith, or conviction if you prefer. The chart below shows the Dow since the March 9th low of 2009. It's been a pretty steady rise since then. But you can see that average daily volumes are less than half of what they were when the low was made a year ago. What does it mean?'

Courtesy Daily Reckoning

'--"It's bearish. That's what it means," said Murray when we ambled over to his desk to show him the chart above. "It means there's a general lack of conviction by buyers. You'd want to look out below."

The DR went on to discuss the Eurozone sovereign debt crisis.

'--This is the old "asset-deflation-first-then-hyperinflation-later" two-step. It's the Big Crash dance, with the Bernanke/CNBC orchestra providing mellow tunes as your promenade your way to the lifeboats. Edwards writes that, "In the near term, however, the deflationary quicksand will suck us ever lower until we suffocate. A key driver for underlying inflation remains unit labour costs. While unit labour costs decline at an unprecedented rate, they are sucking us inevitably into a Fisherian, debt-deflation spiral. Only then will we see how far policymakers are willing to go to debauch the currency. Last year saw them cross the Rubicon. Monetisation is now the policy lever of first resort."

'--Some readers think we're trying to have it both ways on the inflation/deflation debate. But it is one of the issues you have to be flexible about and be willing to go both ways on in order to keep your money safe. Prepare for falling asset prices and a sovereign debt crisis. And then watch out as central banks reach out and take us to strange new monetary places and boldly go where Weimar Germany and Argentina have gone before'.

Precisely our sentiments (more colorfully put), gentle readers, as reported here.

Wall Street booms, 18/3.

US stocks climbed overnight, pushing the Dow Jones Industrial Average to a 17-month closing high.

As well as acceptable corporate profit results, a reported drop in producer prices calmed inflation worries and boosted sentiment toward economically sensitive stocks including Alcoa, DuPont and Caterpillar.

This news came a day after the Federal Reserve said it would continue to keep interest rates near zero for an "extended period," which is interpreted to mean at least several more months.
 
The energy sector led the measure's gains as crude-oil futures rose above $US82 a barrel. The financial and materials sectors also ended strong.

Local markets boomed yesterday, especially resource stocks, and the overnight news should provide another kick today.

W(h)ither Wall Street?, 10/3

Today is the anniversary of the bottom of the market following the crash of 2008.

US equity markets are up by 68 % from the low, after one of the strongest rallies on record.

The Wall Street Journal's ES Browning celebrates with a sensible discussion (reproduced in the Oz, linked here) of what the analysts, and more precisely the analysis, says.

 Courtesy Wall Street Journal

There is no simple answer, or we'd all be rich.

See Henry's blog today.

In conclusion:  Henry is still more or less fully invested in shares, although property has a higher weight in his overall portfolio.

And beware the bubble.  When you judge it is about to burst, take your money and run. Do not forget to pick up the baby.

China's inflation agitates US investors, 9/3.

According to a guru quoted by the WSJ, the rise in China's inflation has created some  agitation on the part of US investors.

US investors are generally nervous at present. Another WSJ writer analyses flows of funds.  US investors pulled $US53 bn out of US equity mutual funds last year, and so far another $US4.6 bn this year.

At the same time, world equity funds have taken in nearly $US 14 bn and bond funds a massive $US 56 bn.

Given the inevitability of a large rises in bond yields as global recovery comes, the latter move at least will seriously burn those same investors.  They will not just be nervous, but positively terrified.

Equity rebound reaches anniversary, 6/3.

'THE Australian sharemarket toasted the first anniversary of its low point during the global financial crisis with a modest gain yesterday, closing out a stunning recovery that has restored $470 billion to the value of stocks.

'The S&P/ASX200 gained 16.7 points to 4767.2 yesterday, 1621.7 points, or 51 per cent, above the 3145.5 level of March 6 last year.

'However, the market remains 30 per cent off its November 1 2007 peak of 6828.7, and investors remain wary that the first year after a crash is traditionally the strongest before a plateau begins'.

John Durie says '...now comes the hard bit.

'Year one of a market recovery is always the easiest because it is built on hope. Year two is when reality must approach expectation.

'This can happen, but normally the market is volatile and if the 1970 bear market recovery is any guide, year two returns will be at best 15 per cent'.

With Wall street 'soaring' on Friday, Monday should see Asian markets celebrating the start of year two of recovery.

Late buying ineffective, 26/2.

'A late wave of buying couldn't quite bring the stock market back from a morning swoon, leaving major averages modestly lower at the bell, hurt by investors' worries about the U.S. jobs picture and sovereign debt in Europe.

'Unwinding of bearish bets in the euro boosted that currency's value versus the dollar as the afternoon progressed, encouraging some traders to take on risk in stocks and commodities. But the trading session's overall tone was clearly bearish, with weak jobless-claims data renewing worries about the pace of the U.S. economic recovery, while comments by Moody's Investors Service kept long-term concerns about Greece's creditworthiness alive'.

US recovery on track - commodity shares to outperform, 22/2.

Henry's Raff report will be posted soon.

Here is its conclusion: 'The Raff Report has closely monitored key indicators for the US economy since 1979, when charts were maintained on graph paper in the absence of personal computers. Over that period of time the data has proven remarkably accurate for predicting changes in the US business cycle. At the moment the data is not supportive of a double dip recession like in the early 1980s.

'With US$12 trillion pumped into economies from a swathe of stimulus packages it is not surprising that many economies are in recovery mode with some recovering faster than others. The trick of course will be how to pull liquidity from the markets without precipitating more crises.

'But in the meantime the resources sector should outperform other industrial sectors. Enjoy the run while it lasts which might be another 5-6 years, just like an average business cycle.

'The data that the Raff Report looks at showed the US economy slowing into a normal cyclical downturn a long way ahead of the GFC. At the moment it’s all engines ahead'.

Wall Street surges, is correction over?, 17/2.

US stocks rallied strongly overnight, led by the banks as investors grew more confident about the US recovery.

Fears of Euro-dominos falling from Greece to Italy seem to have subsided, temporarily at least.

We must not assume that the Eurozone's troubles are over.

And, as we argued yesterday, overcommitted governments will be sorely tempted to 'solve' their budgetary problems with a burst of inflation.

But, back to today's headlines, gentle readers.

'The Dow Jones Industrial Average rose 169.67 points, or 1.7 per cent, to 10,268.81, according to preliminary data, its biggest one-day gain since November 9.

'The move was led by a surge in Bank of America after it reported "significant gains" in the number of modified mortgages it handles through the government's Home Affordable Modification Program, designed to lower monthly payments for struggling customers.

'Elsewhere, British bank Barclays posted better-than-expected quarterly earnings, pushing its American depositary shares up sharply.

'The focus on the US has shifted investors' attention away from Europe, where meetings over the past two days provided more visibility into the European Union's co-ordination to help heavily indebted Greece. Traders have become content that the EU will back up any of its members before their woes spread too widely through the world economy'.

Other stories show how, when markets turn, they turn like a flock of starlings in flight.

Gold jumps as nerves ease over Greece.

Oil soars as Greek debt fears fade.

Greece, Wall Street to be saved, for now, 10/2.

'THE US stockmarket staged its best full-day gain in three months today, helped by hopes for a financial rescue of Greece.

'According to preliminary calculations, the Dow Jones Industrial Average rose 150.25 points, or 1.5 per cent, to 10,058.64, its steepest percentage gain since November 9.

'The broader Standard & Poor's 500 index rose 13.78 points, or 1.3 per cent, to 1070.52, while the Nasdaq index rose 24.82 points, or 1.2 per cent, to 2150.87.

'The Dow was led by a jump in Caterpillar, which was upgraded along with several other industrial names by analysts at Morgan Stanley.

'Coca-Cola was also a big gainer among the blue chips, after reporting a 55 per cent rise in fourth-quarter profit.

'The gains provided a welcome break for investors who had watched major indexes retreat by as much as 8 per cent from their recent highs through to yesterday's close'.

Australian shares 'correct', 9/2.

With Wall Street down another 1 % overnight, Australia's fall of 0.4 % positively benign.

As the graph shows, Australian share prices are up 60% from last March to early this year, down nearly 10% over the past month and down about 33% from the market peak nearly 2/12 years ago.

Modest weekend stability, 5/2.

Dow Jones reports this morning: 'US stocks edged slightly higher overnight after a volatile day of trading thanks to unexpected improvements in economic data'.

But there is great fear about Europe's banks, the weaker Eurozone countries, the possibly worsening US labor market and whether the sun will rise tomorrow.

CNN money provides perspective: 'Rally hits a roadblock: The S&P 500 surged 23% in 2009, and 65% after hitting a 12-year low on March 9 of last year. That momentum propelled stocks into the first half of January. But by the second half of the month, the tone had turned more sour and investors had begun to step back.

'Between rally highs hit on Jan. 19 and Friday's lows, the S&P 500 lost 9.2%, getting close to the technical definition of a correction - a loss of 10%'.

Let's get this dose of the wobbles over, market traders, and get on with our lives.

Global equity market crumble, 4/2.

Greece has been joined by Spain and Portugal on the Eurozone's watch-list.  Euro markets plunged yesterday and wall street followed up in unembiguous style overnight.

'WORRIES about the economies of both Europe and the US have hammered financial markets, with the Dow Jones Industrial Average falling 268 points and commodities reeling, while Treasury prices and the US dollar climbed.

'An unexpected increase in new US jobless claims -- coming just one day before crucial monthly jobs data is due -- erased optimism stemming from strong housing and manufacturing data early in the week. But it was the growing cost of insuring the debt of several European economies, including Greece and Portugal, that spooked investors'.

Henry suspect's China's cage rattling over US arms sales to Taiwan has been a material geopolitical factor.  Here is a must read discussion by Graeme Mills.

Wall Street ends January with a whimper, 31/1.

'US stocks tumbled overnight, capping Wall Street's worst month since February 2009, and even a stronger than expected report of fourth-quarter economic growth that coupled with surprising earnings results from Microsoft, Amazon.com and Mattel failed to halt the recent slump'.

'The Standard & Poor's 500 index dropped 10.66, or 0.98%, to 1073.87. It slipped 3.7% over the course of January and dropped 1.64% this week.

'The technology-heavy Nasdaq Composite tumbled 31.65, or 1.45%, to 2147.35. For the month, it plunged 5.37%. It fell 2.63% this week alone'.

Don't worry, be happy, 26/1.

Chris Zappone of the Age provides reassurance: 'Global shares are under pressure over concerns about China’s growth and President Barack Obama’s planned reforms of the US banking sector, but the sell-off won’t last, analysts say.

'The jitters surfacing simultaneously on both sides of the Pacific last week have been severe enough to test investor optimism, sending global stocks into a sell-off that dragged the benchmark S&P/ASX200 index to its biggest one-week drop in more than three months'.

Share slide continues, 23/1.

'Wall Street tumbled for a third day on Friday as a three-day slide pushed the markets down almost 5 percent. For the Dow, Friday was the lowest close since early November.
 
'Obama’s Move to Limit ‘Reckless Risks’ Has Skeptics (January 22, 2010) For a second day, shares declined on concerns about President Obama’s proposal for tighter restrictions on the activity of banks as the markets finished the week with a three-day losing streak'.

Australia's market yesterday started down with the double whammy of Obama's hitting the banks and China trying to limit lending by its bank.

The third whammy came when someone influential had the amazing (to the traders) thought that the Henry tax review might include a resource rent tax, something that blind Freddy figured out some time ago.

Wall street falls further on Obama's bank plan, China monetary tightening, 22/1.

'US stocks fell sharply this morning as President Obama's proposal to limit the size of banks and the risks they can take weighed on J.P. Morgan and Bank of America, while materials stocks including Alcoa tumbled on worries about how demand may be affected by monetary tightening in China'.

US stocks were down 2 %, and we seem now to be in correction mode as investors absorb a fair bit of 'bad' news.

Wall Street dives, may get worse, 21/1.

'FEARS of a possible rise in borrowing costs globally sent the US stock market to its worst decline since mid-December.

'The Dow Jones Industrial Average this morning trimmed its losses late but still ended with a 122.28-point decline, the biggest drop since December 17.

'The blue-chip measure tumbled 1.1 per cent from its 15-month closing high set in the previous session to end at 10,603.15. Investors focused on a possible cutback in lending by Chinese banks and the hefty price that Greece may have to meet to bolster its troubled economy.

'The US dollar soared, while major stock indexes and commodities were hit hard as investors sought safety. Such skittishness across the financial markets has rarely been seen in 2010's early going; though some traders and analysts believe it may become the norm in the weeks ahead.

Henry says: We do not know the answer to the question laid out in the headline.  But China's lending has to slow, Obama has had either a B+ first year or a C- (the score of a grumpy Republican one assumes) and Obama's Healthcare bill may now be in trouble with a Republican winning Ted Kennedy's seat.

Plenty of room for serious uncertainty.

Buoyant reporting season on the way, 18/1.

'ALMOST a year on from the sharemarket bottoming, Australian investors are about to see the benefits of what is commonly known as the "sweet spot" in financial circles.

'Analysts are predicting a solid reporting season for local companies due to the powerful combination of a swifter than expected economic recovery, extensive cost cutting and below-average interest rates throughout 2009.

'And going by the surge in equity prices -- the All Ordinaries gained 33 per cent last year in its strongest performance in 16 years -- investors are also optimistic.

'Earnings upgrades from companies such as Qantas and the Commonwealth Bank, as well as a strong fourth-quarter production report from miner Rio Tinto ahead of its full-year results in March, have helped cement a widespread belief that the worst of the global financial crisis is over.

'The worry now is that expectations might have risen too high'.

Other encouraging headlines today are:

*  Banks leading general recovery.
*  Bonanza for miners.

The caveat, of course, is how soon will the correction come.

Henry's weekend discussions on this matter were indecisive, but there was widespread conviction that the degree of recovery experienced in 2009 was well ahead of reality and we should expect a really good correction.

Henry's blog today grapples with that issue, helped by John Mauldin.

Wall Street backs up, 13/1.

The anticipation of Alcoa's and Catterpillar's earnings were given as a reason for equity markets to rise two days ago, now they are blamed for the market backing up.

It seems like a clear case of 'buy the rumor, sell the fact'.

'WEAK earnings and higher borrowing costs in China dented the US stock market yesterday, leaving major indexes with modest but broad-based declines'.

Wall Street sets 2010 direction, 12/1.

US stocks rose overnight, with Alcoa among the gainers ahead of its fourth-quarter earnings report, while Caterpillar jumped on signs of economic improvement in China.

The Dow Jones Industrial Average climbed 45.8 points, or 0.43 per cent, to 10,663.99, its highest close since October 1, 2008.

The Australian stock market rose yesterday in anticipation, boosted by the China data and stronger commodity prices.  Further rises in Asian bourses today would not be surprising.

Asset bubbles feared, 11/1.

This is the theme of the latest Economist.

* 'In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, but they are overvalued by almost 30% in Britain and by 50% in Australia, Hong Kong and Spain'.

* 'The American (equity) market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966'.

* 'The MSCI world index is more than 70% higher than its March (2009) low. Even bigger gains were seen in emerging markets, with the Brazilian, Chinese and Indonesian bourses all more than doubling, in dollar terms, last year'.

Henry comments further here.

Contrarian Investor Sees Economic Crash in China, 7/1.

'SHANGHAI — James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

'Now Mr. Chanos is betting against China, and is promoting his view that the China miracle has blinded investors to the risks in that economy.

'As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

' “Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point'.

Implications of market instability, 6/1.

Ambrose Evans-Pritchard of the London Telegraph, focusses on the risks of instability in financial markets.  He says in 2010: 'The Yen will outdo the Yuan in a race to the bottom'.

'Milton Keynes will be vindicated. Lord Keynes will lose some of his new-found gloss. The Krugman doctrine that we should all spend our way back to health by pushing deficits to the brink of a debt spiral – or beyond the brink – will be seen as dangerous'.

However, 'By mid to late 2010, we will have lanced the biggest boils of the global system. Only then, amid fear and investor revulsion, will we touch bottom. That will be the buying opportunity of our lives'.

Brave investors take note!

More here in Henry's Blog today.

Wall Street opens 2010 with a bang, but beware the coming correction, 5/1.

'US investors began 2010 with a buying spree, pushing Wall Street stocks and other risky assets sharply higher on strong manufacturing data and comments from Federal Reserve officials favouring low interest rates.

'The Dow Jones Industrial Averaged climbed 155.91 points, or 1.5 per cent, to 10,583.96, its biggest one-day gain since November 9 and its highest close since October 1, 2008'.

Several articles review the outlook for shares today.

Most are bullish, since the US economic recovery is expected to continue, but the more experienced writers observe that the boom from March 2009 was surprisingly strong with no serious set-backs.

What happens when the US Fed begins to mop up the vast lake of excess liquidity?

A major correction, methinks.

Headlines today include:

*  Gold jumps.

* Oil soars.

*  Copper rises.

The chief potential policy change for investors to note is the US Fed's new willingness to lean into the wind of asset bubbles.

'THE US Federal Reserve must be open to raising interest rates to pop future asset bubbles, even though stronger regulation remains the best solution to prevent a repeat of the crisis, the Fed chief said today.

'Fed chairman Ben Bernanke said all efforts should be made to strengthen the US regulatory system to prevent a repeat of a financial crisis that Bernanke described as possibly the worst in modern history.

"However, if adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous build-ups of financial risks, we must remain open to using monetary policy as a supplementary tool," Mr Bernanke told an annual meeting of the American Economic Association.

'Critics have said the Fed kept interest rates too low for too long in early 2000, helping to fuel a housing bubble at the root of the recent financial crisis.

'The same critics now see a risk that, with the Fed's key short-term rate at a record low close to zero since December 2008, a new bubble may already be forming.

'Although admitting that monetary policy was accommodative in early 2000, Mr Bernanke said lax supervision of toxic mortgages by the Fed and other bank regulators, as well as excessive flows of capital around the globe, were the main reason behind the housing bubble'.