09/23/09   A Week of Slogans

Editor’s Corner

A Week of Slogans

Ron Rowland

Global leaders converged on New York this week to make speeches, go to parties, and generally pretend they are actually doing things that will lead to world peace and prosperity. “We must embrace a new era of engagement based on mutual interest and respect, and our work must begin now,” President Obama urged the U.N. General Assembly. He said this a few days after the Communist Party of China released a list of official slogans marking the 60th anniversary of its rule over that nation, among them the stirring refrain “Put people first, realize, safeguard and develop the fundamental interests of the overwhelming majority of the people!”

Meanwhile back in Washington, the Federal Reserve’s Open Market Committee issued a similar statement, proclaiming that “Policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability!” (They forgot to include an exclamation mark, so we added one to the quote.) Exactly what this means is not entirely clear. The financial markets reacted favorably at first, with the S&P 500 climbing to its highest point in almost a year, before retreating in the final hour.

CNBC appears, with its usual impeccable timing, to be preparing for another celebration of Dow 10,000. The first such observance was on March 29, 1999, more than ten years ago. Major benchmarks have strong upward momentum despite widespread pessimism among the proletariat. How can this be? The answer, we suspect, is that new government spending is offsetting the consumer slowdown. The impact is not uniform throughout the economy, however, and cannot be sustained indefinitely. Favored names in favored sectors (that’s you, bankers) are reaping an outsized share of the rewards. The problem with this is that greed and incompetence, having been rewarded and subsidized, will eventually create another crisis which will not be so easily resolved. For now, though, most indicators are pointing higher. This is no time to fight the tape.

Treasury rates seemed to stall out the last two weeks in the 3.40-3.50% range on the ten-year notes. Yields dropped to the lower end of the range following today’s FOMC announcement, driving the U.S. dollar down as well. Gold is still hovering around long-term resistance in the $1,000 range. The FOMC seems unconcerned about inflation and said it will likely keep rates low for an extended period. Given their record, this may mean inflation is exactly what we should fear most. Without a breakout in gold, however, we suspect the Fed has it right for now.


The Materials sector had another good week and held on to its top spot in the rankings. This happened despite weakness in the commodity markets – proof that positive long-term correlation is not always dependable in the short run. Financials moved back up to #2 as a strong showing by brokers, real estate, and insurance offset weakness in regional banks. Health Care was the only sector to lose momentum this week as investors continued to exit the traditionally defensive stocks in favor of more growth-oriented sectors.


Gains in the Style categories were inverse to their capitalization this past week. Micro Caps made the strongest advance in terms of return, momentum gains and ranking improvement. Small caps also performed well, outpacing the S&P 500 by more than 1%. Mega Cap is still on the bottom, and the large cap categories are not much better.

The EU stayed on top, helped by strength in the Euro versus the U.S. dollar. Pacific Ex-Japan (which is to say, Australia) was behind by a whisker and could take first place soon. An upgrade of Brazil’s sovereign debt by Moody’s (Fitch and S&P had previously made that upgrade) helped Latin America climb to third on the list. The U.K. lost momentum; remarkably, the pound is actually weaker than the greenback right now. Japan continued to sink as euphoria surrounding elections faded.


The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

“There will be death panels enacted by this Congress.”

Barney Frank, speaking at House Financial Services Committee
on financial regulatory reform this morning (9/23/09)


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