What traders are talking about this morning:
1) Now that the cash for clunkers program is expiring, attention is turning to two other incentive programs: The cash for appliances program and the soon-to-expire first-time homebuyer tax credit.
a) The appliance program was passed as part of the stimulus package. The $300 million program provides $50-$200 rebates for high-efficiency appliances (those with an Energy Star seal); it begins this fall. The appliance industry could certainly use some help (appliance shipments are down 15 percent year over year) but it’s not clear how much of a difference it will make (washing machines do not generate the same excitement as a new car).
b) The $8,000 first-time homebuyer tax credit that expires Nov. 30. To be eligible for the credit purchases must be completed by Nov. 30th. With closings taking a couple months, that means contracts should be signed by the end of September to be safe, and this is spurring a lot of debate that the program, like the cash for clunkers program, will be extended. Some have even called to extend it to all home buyers.
2) Is there finally a test for market bubbles? Last month, a team of economists led by Didier Sornette at the Swiss Federal Institute of Technology in Zurich published an obscure paper talking about stock market bubbles, but in this case they specifically discussed the recent runup in the Shangahai stock market, which ran up over 90 percent from the start of the year through July.
What has attracted some interest is the authors specifically predicted that the Shanghai market was in a bubble and would burst between July 17 and July 27. Their thinking was based on the idea that bubbles are fairly straightforward events resulting from faster than exponential growth, and that the Shanghai's recent behavior fit this criteria.
The Shanghai market did not burst between July 17 and 27, but it did correct 20 percent right after August 4, and that was close enough to attract attention.
The paper, "The Chinese Equity Bubble: Ready to Burst," is here.
3) Stealth dividend raising. According to Soleil, 18 of the S&P 100 companies have raised their dividends in the past six months, including Exxon, Wal-Mart and IBM .
CIO Vince Farrell notes that "It is not a recommended list by any means" but "I just think it's interesting to note those companies that have returned more cash to shareholders in the teeth of the ferocious financial storm we have witnessed recently."
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