Archive for February, 2005

GDP, Inflation, Oil

Saturday, February 26th, 2005

Strong GDP numbers are being credited with driving the US stock market higher, outweighing concerns about interest rate increases. High oil prices are boosting Energy stocks but are they damgaing the world econmy as the International Energy Agency claims?

It’s an important question because OPEC seems less concerned about high oil prices than they used to:

Dealers shrugged off news of rising US crude stockpiles to focus on Saudi oil minister Ali al-Naimi’s forecast that oil would stay between $40 and $50 for the rest of this year, a signal the Opec cartel might be happy with such levels.

Inflation, Bonds, and the Fed

Sunday, February 20th, 2005

Alexandra Twin from CNNMoney has perhaps the clearest description of the bond problem:

Greenspan’s much-discussed “conundrum” as to why yields on long-term bonds have not risen despite the rise in short-term interest rate certainly woke up the bond market: Treasury bond prices tumbled for three sessions, pushing the yield on the 10-year note up to 4.26 percent from 4.08 percent. Treasury prices and yields move in opposite directions.

Rachel Beck from the AP writes about how the bond market rally was surprising everyone, including the Fed:

“For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum,” Greenspan told the Senate Banking Committee. “Bond price movements may be a short-term aberration, but it will be some time before we are able to better judge the forces underlying recent experience.”

Ros Krasny from Reuters shows that the Fed is unlikely to change its policy of measured increses in interest rates. The conclusion is that the Fed is very concerned with the bond market:

Greenspan’s concern about low long-term yields means the tail could wag the interest rate dog over the next few months, he said.

Normally fixed income dealers use the central bank’s views on Fed funds to make trading decisions in bonds. But the reverse may be taking place.

“The Fed does not control the long end of the curve but they find (current levels) hard to justify, so bond yields complicate matters a bit. If the 10-year yield (US10YT=RR: Quote, Profile, Research) rises back to 4.5 percent there is more chance the Fed will pause the funds rate at 3.25 percent,” Ruskin said.

My conclusion, which is based on a lot of reading, is that no one has any idea what’s going to happen to the bond market.

China’s stock market

Sunday, February 13th, 2005

China Finance Online Co. Limited (Nasdaq: JRJC) is blaming a weak Chinese stock market for a warning that earnings may decrease.

One wonders how long the Chinese government can wait before opening the market, which is key to making China’s stock market a better place for your money:

Opening the market may allay concern that turning state- owned shares into marketable securities will drag down prices. The so-called nontradable shares, accounting for two-thirds of China’s $427 billion market value, are the “single biggest problem” for investors, said Ruffle.

The future of class action lawsuits

Wednesday, February 9th, 2005

I recently wrote about Vioxx and Celebrex. Class action lawsuits have long been hurting big business, but the question for me is do the businesses deserve it?

Anyone who’s watched Erin Brockovitch knows what I’m talking about. How can citizens take on a big corporation? Only by ganging up on the corporation. However a new law, if it’s passed, will make class action lawsuits far more difficult.

This would improve the investing climate in America, but I fear that it will leave many Americans who have been hurt by big corporations with no way to seek compensation.

Latin America vs. Asia

Wednesday, February 9th, 2005

An article from the Houston Chronicle noting improvements in Latin America also shows us why I would invest in Asia instead.

First growth of 4%/year doesn’t compare favorably to countries like China, India, and Thailand. It is similar to what we may expect to see in Korea, with Korea being more stable:

But the report also points to lingering vulnerabilities in public institutions and high government debt levels in the region, which has been prone to crippling financial crises that make governments in the region more dependent on loans from the IMF.

Oil prices

Wednesday, February 9th, 2005

As reserves in the US increase and demand in China decreases, oil has fallen to under 45.00/barrel.

As usual, this price is not necessarily stable as OPEC warned a sharp price increase would trigger production cuts. This instability is one reason why airlines are a risky investment. They have no control over one of their biggest expenses.

Investing in Real Estate (IMH)

Wednesday, February 2nd, 2005

As long time readers will know, one of the stocks I’m invested in is a REIT – IMH or Impac Mortgage Holdings. Well here’s an article that’s mostly about the housing sector and one real estate fund in particular, but IMH gets a favorable mention…

With the dividend over 13% I don’t see myself selling at the moment. For more information on REITs see my old post I like REITs or Screening for REITs.

Arguing that the UK stock market is a bargain

Wednesday, February 2nd, 2005

Jeremy Warner is arguing that the UK stock market is currently a baragin and that only foreigners realize it. His argument that the Labour party is not bad for the markets seems reasonable enough, but when he notes that “nearly a quarter of the total value of the UK stock market is accounted for by just four companies – BP, GlaxoSmithKline, Shell and Vodafone” I wonder just how safe it is to buy a total market index fund – one scandal in one of the big 4 could have a very big impact.