Still, the underlying mood seems to be one of relative calm: Sure, the government might shut down. Sure, the U.S. might even come to the brink of default. But in the end, cooler heads will prevail and a last-minute compromise will be reached.
Time will tell, of course. But Sam Stovall, chief equity strategist at S&P Capital IQ, notes that it was just a week ago Wednesday that the consensus proved quite wrong about the Fed’s tapering program. That raises the question of whether the crowd is making the wrong bet once again. He writes:
Could this majority, who we think expects Congress to arrive at an 11th hour agreement, be wrong again? With a mid-term election year right around the corner, it may behoove one party to allow the unthinkable to occur, so long as the other party got the blame. We believe the likelihood of another shutdown grows.
That’s depressing. But at the same time, Stovall argues that while Congress could force the S&P 500 to endure a 5%-plus drop, it could end up as a “gift” to investors.
He notes that the peak-to-trough decline associated with the shutdown of the U.S. government between Dec. 16, 1995 and Jan. 6, 1996 saw the S&P 500 drop 3.7%, “only to witness a jump of 10.5% in the subsequent month.”
The stock market has gotten a few bumps and bruises on its ride higher this year, but one area that has had a pretty smooth ride the whole way is the Internet group. It seems like recently every time you look at the ticker, stocks like Facebook (FB), Netflix (NFLX), Pandora (P) and Yahoo! (YHOO) are in the green, even when the overall market is in the red.
The Internet group has had a pretty amazing run during this bull market, and it has been accentuated by humongous gains in 2013. Below is a chart showing the performance of the Nasdaq Internet stock index (QNET) since the start of the bull market on March 9th, 2009. As shown, the Internet index is up 387% over this time period, compared to a gain of 207% for the Nasdaq 100 and +150% for the S&P 500. So far in 2013, the Internet stock index is up 48%! Its big jump over the last few months really stands out in the chart below.
Below is a table showing the best performing stocks in the 81-member Nasdaq Internet stock index so far in 2013. As shown, NQ Mobile (NQ) is up the most with a gain of 286%, followed by Orbitz Worldwide (OWW) at 258% and Netflix (NFLX) at 232%. YY Inc (YY) and Zillow (Z) round out the top five with YTD gains of more than 200% as well. Other notable stocks on the list include Pandora (P) with a YTD gain of 177%, Groupon (GRPN) at 140%, Facebook (FB) at 86% and Yahoo! (YHOO) at 57%.
The US Treasury Secretary wrote a little note to Congress today, informing lawmakers that on October 17, the country, which currently cannot issue debt, will only have $30 billion in cash on hand. That won’t be enough to cover daily obligations that can reach $60 billion. And that means default, technical or otherwise. Watch out for your portfolio, because the markets won’t like that.
If you want to know what happens should they fail to raise the limit, consult this terrifying flow chart:
“The broadcast
networks adapted to the expansion of cable networks very well,” Netflix CEO Reed
Hastings said last week. “And that’s what we’ll see with cable networks: They’ll
all become internet networks.”
The comment about
cable networks becoming internet networks is interesting, in part, because
Netflix recentlybegan describing itselfas a “network” for the first
time.“We are a movie and TV
series network,” it now says in the company’s “long-term view” document. The company’s
preferred self-description used to be “internet TV app,” but Hastings clearly sees
“network” as an equalizing term.
Hastings also
used the interview to defend Netflix’s strategy of releasing full seasons of its
original programming all at once, rather than one episode per week like
traditional TV networks. Some think it hurts Netflix viewing and the amount of
online chatter about the shows when people watch many episodes at once. But
Hastings said
his customers don’t really do that. ”Occasionally they binge, and that makes a
great story, but most of the time it’s just a single episode like you read the
chapter of a book,” he said, drawing an extended analogy with the history of
book publishing.
Novels, he observed,
were once published as serialized fiction in magazines. “And then book
manufacturing got cheap enough where you could make a book and sell it at a
reasonable cost,” Hastings said, referring to steam-powered
printing presses that emerged in the 19th century. “And then people got control
of all 13 chapters; they could read on their own schedule, and that greatly
outcompeted the serialized release model of the then-historic
magazines.”
You can watch
Hastings’ full
interview above. Here’s the meatiest passage (starting around 4 minutes into the
video):
Two hundred years
ago, a lot of fiction was written for magazines. It was a serialized format for
novels. And then book manufacturing got cheap enough where you could make a book
and sell it at a reasonable cost. And then people got control of all 13
chapters; they could read on their own schedule, and that greatly outcompeted
the serialized release model of the then-historic
magazines.
And I think we’ll
see the same thing, which is: More and more, consumers want control. They want
freedom. Occasionally they binge, and that makes a great story, but most of the
time it’s just a single episode like you read the chapter of a
book.
And we’ll see
chapters that are variable length. Like TV shows, instead of having 22 minutes
for every episode, you can go with 30 minutes and 16, depending on the natural
rhythms of the story.
So I’m sure that
will take off, and the major networks— Look, the broadcast networks adapted to
the expansion of cable networks very well. And that’s what we’ll see with cable
networks: They’ll all become internet networks. They’ll do a lot of these
release patterns. Because it’s what consumers want. They want control, and they
want to be able to watch things— They can watch more that way because they can
watch on their own schedule.
Ray
Dalio manages the world's largest hedge fund, Bridgewater
Associates.
It
has a tremendous track record, so when the man talks about markets, people
usually listen.
Beyond
that, Dalio is known for having one of the most refined understandings of the
economy in the financial industry.
Lots
of investors pontificate, but Dalio's views are legitimately
well-respected.
As
part of his mission to explain how the economy works, Dalio has put together
aneat,
new 30-minute animated videocalled "How the Economic Machine Works,"
where Dalio narrates his big-picture view of the
economy.
"I
feel a deep sense of responsibility to share my simple but practical economic
template," Dalio says. "Though it's unconventional, it's helped me to anticipate
and sidestep the financial crisis, and it has worked well for me for over 30
years."
Dalio
is worth almost$13 billion, so it's safe to say his
economic template has served him well.
A dispute between two obscure mining companies in the former Soviet Union has ended, at least temporarily, a cartel that artificially propped up the price of potash, an important fertilizer needed by farmers around the world.
Much of the world’s potash, a form of potassium, is controlled by two export cartels,onemade up of Canadian producers and one involving a company in Russia and a company in Belarus.
The potash cartels have imposed billions of dollars of extra costs on farmers and consumers, particularly in developing countries like China and India that have to import much of the fertilizer they use, according to a recent paper published by the American Antitrust Institute, a research group.
The governments of Canada, Russia and Belarus, which benefit from the cartels’ price fixing through higher tax collections and mining royalties, have contributed to the problem by either exempting the cartels from antitrust laws or encouraging them to control the global market for this important commodity.
In late July, however, the Russia company pulled out of its cartel, saying that it wanted to produce and sell more potash than the arrangement allowed. In retaliation, the Belarus government last month arrested the chief executive of the Russian company, Uralkali, on trumped-up charges of abuse of power and is holding him in custody. The collapse of that cartel is likely to lead to a 25 percent decline in the price of potash, which was selling for about $400 a ton earlier this year.
Some analysts predict that the cartel’s breakup will be only temporary because both companies stand to lose billions of dollars in profits by ending their partnership. Earlier this month, the chairman of Uralkali left the door open to working with the Belarusian producer again once the chief executive of his company is freed.
Reducing the grip of the potash cartels will take coordinated international action. Unfortunately, the World Trade Organization, which settles disputes involving many kinds of unfair trading practices, does not have the authority to look into anti-competitive partnerships. The potash case demonstrates why the W.T.O. needs the power to investigate and punish such behavior.
This is a fluid situation, but any Breaking Bad fan will tell you how hard it is to break up a cartel. As much as the NY Times feels the potash producers should sing Kum By Yah, there is a lot of money at stake and the players here are not exactly selling girl scout cookies.
"If stocks fail that test, it could lead to a further drop of 5.5% to the bottom of a long-term support range, which would represent a 9.6% decline from last week’s record high.
The 1700 level is the bottom of a previous resistance range at the July and August highs. Falling below that level is technically significant, Mr. Suttmeier said, as it calls into question the validity of last week’s run up to record highs.
The S&P 500 is down 0.6% at 1700 in recent trading, just off an intraday low of 1697. The index has lost 1.5% since closing at an all-time high of 1725.52 on Sept. 18."
I wouldn't complicate things too much here. We're still within a well defined trading range. However, Suttmeier does bring up a good point, and it did feel like a blow off top on the Fed "no-taper" day. Levels to watch and trade around: 1698 is the 9 dma and 1675 is the 50 dma.
