Markets reacted favorably to the Greek election results as the pro-bailout candidate was elected and began forming a new government. However that good news did not last long as the Spanish bond auctions that were taking place ended up sending Spanish yields above 7%. The 7% yield is seen as a tipping point, a threshold if you will that Spain cannot maintain.
Mid week results were expected as usual from the Fed as they almost always telegraph what they will be doing. It was no surprise that "Operation Twist" was extended although the market which opened down rebounded to flat levels when the announcement came out. The key with "Operation Twist" is that it doesn't inject the markets with any new stimulus which the markets do not like.
Jeff Lacker president of the Federal Reserve Bank of Richmond dissented from the Fed’s $267 billion extension of its Operation Twist program believing it would spur inflation and not significantly help the economy. “I do not believe that further monetary stimulus would make a substantial difference for economic growth and employment without increasing inflation by more than would be desirable,” Lacker said in a statement today from the Richmond Fed. Lacker went onto say, “While the outlook for economic growth has clearly weakened in recent weeks, the impediments to stronger growth appear to be beyond the capacity of monetary policy to offset.”
What really sent the markets spiraling was on Thursday when a host of US economic data came out showing further deterioration in the economy. You'll want to review the post on Friday via Mish Shedlock 12 Reasons US Recession Has Arrived (Or Will Shortly). See also Drawing meaning from the Fed's fcast as the Fed lowered it's forecast for GDP and Inflation but increased the forecasted Unemployment rate.
It was a quiet week in the DWCM Fund. We have two option positions expire but other than that we were not active in the markets again this week. If you recall we made some major moves last week reducing out tech holdings in order to build our cash reserve back up. In additional tech stocks looked to be breaking down.
The Fund was basically flat for the week but that was good enough to beat the DJIA and S&P 500 which finished lower. Only the NASDAQ and Russell 2000 finished in the black.
The Week Ahead
This week boasts a plethora of economic data releases. If last week was any indication as to what to expect from the data it could be another rough one. I would expect as is custom over the past three summers that the equity markets will continue to be turbulent. Both with the ability to spike up a couple percentage points and down like we saw this week.
The DJIA has already had 7 trading days with 100 points moves and a few just slightly below that mark in the month of June. There have been 3 trading days with moves above 200 within the month.
- Mon - New Home Sales, Dallas Fed Mfg Survey
- Tue - Redbook, S&P Case-Shiller HPI, Consumer Confidence, Richmond Fed Manufacturing , State Street Investor Confidence Index
- Wed - Durable Goods Orders, Pending Home Sales Index
- Thu - GDP, Jobless Claims, Bloomberg Consumer Comfort Index, Kansas City Fed Manufacturing Index
- Fri - Personal Income and Outlays, Chicago PMI, Consumer Sentiment
DreamWorks Capital Management
I wanted to thank everyone who attended out first finance seminar, 401k and 403b Plans: You have Options this past Monday at the The Community House located in Birmingham, MI. We had a very interactive group and we appreciate everyone's support. Our next seminar will be on September 18th and the focus will be Balancing Your Changing Investment Needs: Emergency Fund, Investments, Retirement, Education, and Philanthropy. More detail to come but we certainly hope that you will be able to join us.
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