Jason’s October 5th Weekly Market Commentary
Greek 2-year debt is priced at 56%; the market is awaiting Europe to hand down an orderly default and the longer this plays out the more volatility and indecision will rule day-to-day trading.
Against the backdrop of uncertainty in Europe, the MSCI All-Country World Index has had its roughest stretch since ’08, down near 18% for the quarter. During this time, between the ECB and Federal Reserve, central bankers have bought bonds, banned short selling, pegged 0% rates, provided unlimited funding and tried to twist the yield curve flatter. Bottom line: As long as investors are concerned Greece’s debt issues can spiral into Italy and Spain risk assets will suffer.
Given fears of global recession and financial contagion, U.S. sovereign debt and the dollar continue their surge to little surprise. The oft-forgotten corollary to dollar strength is commodity weakness, as most commodities are traded internationally in dollars, so it is logical gold, copper and oil – to name a few headline natural resources – have fallen sharply in the past few weeks.
Investors are understandably on hold for more risk, but in our opinion the fundamental valuation of general equity indices has entered extremely interesting levels. Price/earnings, price/sales, book value, dividend yield…no matter the metric, equities are about as cheap as they’ve been in the better part of two decades. Can they get cheaper in the event of more European chaos? Yes. But the margin for error is getting larger and that should be a source of great comfort for stock buyers.
We love historical trivia here at CFG but it is melancholy to report a once-proud company like Eastman Kodak is sinking into a footnote. As we go to hit send share prices are near $00.67; this was an $80 stock in the mid-’90′s. It’s a bittersweet reminder that technology is the least forgiving of sectors.
Album of the Week: Nevermind by Nirvana; celebrating the 20th anniversary release on September 24th, you might just have to be a Gen X-er to appreciate what it meant to us…and that just made me sound like my parents.