Trader Talk

Mixed Market Messages


Lots of pros and cons today -- stock market watching, the fight being played out in the commodities market (oil up), bond market and currencies.

Bullish developments: 1) Blackstone president Hamilton James saying the market will work through LBO debt "surprisingly fast"; 2) Political will on subprime mess -- look at the hearings this morning where everyone from Bernanke to Paulson paraded through Congress talking about ways to help; 3) Brokers are working through their losses -- yes, Bear Stearns was disappointing, but Lehman , Goldman Sachs and Morgan Stanley were better.

The bears have plenty of ammunition as well: 1) Corporate guidance will likely be cautious -- witness FedEx's cautious comments; 2) The bond market is slowing taking away the Fed cuts with the rise in longer-term rates; 3) The dollar is down again on the rate cuts, along with speculation Saudi Arabia may diversify away from the dollar.

The dollar weakness is a big topic today. One of the down sides to the Fed rate cut is that it has given the green light to sell an already weak dollar. There's pros and cons for the stock market. The pros: 1) U.S. products are more competitive on a price basis; 2) It helps profits of U.S. multinationals, which have to repatriate their strong foreign currency profits to a weak U.S. dollar.

But there are cons: 1) There's a strange interest rate differential developing -- between the U.S., which is lowering rates, and Europe, which is looking at raising rates. Many say this is untenable and the ECB will end up lowering rates soon; 2) It makes our bonds and stocks less attractive to foreign investors.

In the meantime, it has helped our stock market. Commodity stocks that are benefitting from the rise in commodities have had a terrific month, particularly for those in the gold, iron ore and steel business. Look at the price moves:

For today, the groups that have been in the doghouse for the past month -- financials, retail and homebuilders -- are again being sold. Financials and retailers are down about 2% and homebuilders are down 4% on average.

Questions?  Comments?