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Dallas, TX
January 26, 2010, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Commercial Real Estate Wobbles
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What's Hot Today: |
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U.S. stock index futures are pointing to a lower opening
on Tuesday. Trouble with China's market is starting to trickle into other
parts of Asia.
Today's Economic Calendar:
- FOMC Meeting Begins
- ICSC-Goldman Store Sales 7:45 AM ET
- Redbook 8:55 AM ET
- S&P Case-Shiller HPI 9:00 AM ET
- Consumer Confidence 10:00 AM ET
- FHFA House Price Index 10:00 AM ET
- State Street Investor Confidence Index 10:00 AM ET
- 4-Week Bill Auction 11:30 AM ET
- 2-Yr Note Auction 1:00 PM ET
News For Thought
Budget freeze has enough holes in it to let the breeze blow right through
it. It sounds good on the surface, but the White House's proposed spending
freeze looks more like lip service than anything else. According to the Wall
Street Journal: "President Barack Obama intends to propose a three-year freeze
in spending that accounts for one-sixth of the federal budget—a move meant to
quell rising voter concern over the deficit but whose practical impact will be
muted. To attack the $1.4 trillion deficit, the White House will propose a three-year
freeze on discretionary spending unrelated to the military, veterans, homeland
security and international affairs, according to senior administration officials.
Also untouched are big entitlement programs such as Social Security and Medicare."
So what do the numbers say when you look inside this latest proposal? According
to The Journal: "The freeze would affect $447 billion in spending, or 17% of
the total federal budget, and would likely be overtaken by growth in the untouched
areas of discretionary spending. It's designed to save $250 billion over the
coming decade, compared to what would have been spent had this area been allowed
to rise along with inflation."
Oh yeah, there's more: "The administration officials said the cap won't be imposed
across the board. Some areas would see cuts while others, including education
and investments related to job creation, would realize increases. Among the areas
that may be potentially subject to cuts: The departments of Housing and Urban
Development, Justice, Energy, Transportation, Agriculture, and Health and Human
Services." Bet you Congress gets a raise next time around, though.
China puts brakes on lending. According to The Wall Street Journal: "Several
Chinese banks have ordered some branches to suspend new lending for the rest
of this month." According to the report, the banks have taken the action voluntarily
in order to prevent more severe tightening action by the Chinese government.
Dollar benefits from China worries. The U.S. dollar was getting a boost
in early U.S. trading as worries over China's economy began to spread.
As the U.S. political situation tightens, worries about the Chinese economy,
spurred by the perception that a bubble is about to burst, and tigther monetary
policy out of the Chinese central bank, are starting to make the dollar attractive.
Talk of at least some token fiscal tightening from the White House is also helping
the greenback. As we've said before, the dollar continues to look as if it has
made a long term bottom.
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Commercial Real Estate Wobbles
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New York Real Estate Default Could Be A Sign Of Future Developments
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Anyone who thought that commercial real estate in the U.S.
was out of the woods took a knock on Tuesday when the partnership between
Tishman Speyer and Blackrock defaulted on their huge New York City apartment
venture, Stuveysant Town. But this could be the signal that more trouble is
coming for commercial real estate, both in the U.S. and perhaps even in China.
According to Marketwach this is what has the stock market worried as "U.S.
stock-market analysts are pointing to a growing divide between banks, with
regional players especially vulnerable to blow-ups in commercial real estate,
as illustrated by the latest round of bank failures." In fact, bank failures
are now so common that few noticed that five new banks were taken over by the
FDIC last Friday. The geography was fairly well spread out too including banks
in New Mexico, Oregon, Washington, Florida and Missouri.
What's more interesting is that commercial real estate has been a significant
contributor to all nine bank failures in 2010 according to the FDIC. The FDIC
cites a combination of "commercial real estate loans that went sour" and "weak
regional market conditions" as the major reasons for the failures.
And that means that "As a result of delayed and suspended contributions, increased
benefits, and the large investment losses of the last two fiscal years, previously
healthy plans remain healthy, but are now at risk of becoming unhealthy. Previously
unhealthy plans are now at risk of running out of assets before all benefits
get paid," according to a report issued last year by the actuary's office."
According to Marketwatch, citing a recent report by Morgan Stanley, there are
four big regional banks with the most potentially troublesome geographies and
high risk: Zion's Bank (Nasdaq: ZION), M & T Bank Corp (NYSE: MTB), Regions
Financial (NYSE:RF) and Synovus (NYSE: SNV). Morgan Stanley's report also pointed
toward Bank of America (NYSE: BAC) as facing some potential problems with a big
project in Atlanta.
The situation, according to several analysts could start to worsen fairly soon
and take until 2012 to sort out, with regional banks, who have a larger percentage
of their assets based on a percent of total assets exposed to commercial real
estate facing the greatest risk.
Tishman Speyer and Blackrock's failure in New York city is emblematic of the
problem faced by the sector and the bank. The developers took on too much debt.
They improved the properties but couldn't raise rents on the properties as New
York city courts prevented them from doing so. When the project's revenues fell
short of expectations the developers couldn't pay the loans.
One hedge fund manager, Jim Chanos, told CNBC yesterday that China's real estate
bubble is "unprecedented." Chanos warned CNBC viewers to watch the construction
materials and the commodity stocks carefully, as they could fall significantly
if China starts to roll over.
The Chinese stock market is starting to weaken once again, and other markets
in Asia are also showing weakness, especially Hong Kong.
The reason for the switch, aside from losing the corporate job is often disillusionment
with the corporate world. Yet, a new civic minded gig isn't always easy to transition
to. As MSNBC.com points out: "It’s not an easy transition. In fact, the tough
economy that inspires some people to make the switch may also be the reason why
some are unable to follow their more civic-minded career dreams, which may pay
much less."
Conclusion
The stock market is starting to show signs of a top. Volatility is on the rise,
and support levels that were good places to buy on dips, such as the 20 and 50-day
moving averages on the S & P 500 gave way pretty easily last week.
China has tightened monetary policy three times recently and the currency markets
are starting to show some changes in trends that have been in place for years
in some cases, such as the Euro/U.S. dollar pair, which had been tilted toward
the Euro and seems to have reversed course.
When currency trends change it often means that large amounts of very smart money
is starting to see something in the future and they are starting to bet on it.
Currency traders are very pragmatic. And in this case, they seem to be betting
that even though the U.S. may not recover very strongly from its recession, the
situation may be better than what awaits Asia and Europe if China enters a protracted
economic contraction.
The real question is whether it will actually come and when. But one thing is
fairly certain, the currency traders are starting to see a trading opportunity
develop. And those guys are not likely to make bets on empty expectations.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Ultrashort China ETF (NYSE: FXP) and Ultrashort Real Estate ETF (NYSE: SRS) Are Trying To Rally
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Chart Courtesy of StockCharts.com
As the stock market wobbles, two potential beneficiaries
are emerging, the Ultrashort China ETF (NYSE: FXP) and
the Ultrashort Real Estate ETF (NYSE: SRS).
Chart Courtesy of StockCharts.com
Markets rise and fall. And in this day and age, investors
have plenty of options as to how to play the dominant trends.
To us it looks as if we may be seeing some trends change
in the not too distant future. One is China and the other
is commercial real estate.
If we're right, and the stock market has topped, both these areas should provide
potential for big gains on the short side.
Both ETFs have bottomed and are forming bases. Both are very inexpensive. And
relatively speaking, the chances of them breaking to new lows are quite low,
given the length of the bases that they've formed, and the toppy looking stock
market.
Tighter monetary policy in China, and a worsening real estate situation in the
U.S. are likely to contribute to the problems faced by the market.
What's the bottom line? This is a good time to add both of these ETFs to a watch
list and to keep a very close eye on the developments in the markets, in politics,
and on how these ETFs respond to those developments.
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