Dow Industrials Move Close To Wiping Out Year's Losses

Wall Street Journal ^

[Sub-Driver]

Dow Industrials Move Close To Wiping Out Year's Losses May 1, 2008 4:26 p.m.

Investors bet heavily on consumers rather than commodities Thursday, spurring a heated stock rally that pushed the Dow Jones Industrial Average near break-even for the year.

The Dow ended up 189.87 points, or 1.5%, at 13010.00, despite a 3.6% drop in component Exxon Mobil. The energy giant posted a 17% rise1 in first-quarter net income but missed analysts' expectations, as high crude-oil prices faced off against lower refining and chemical margins, lower production volumes and higher operating costs.

The blue-chip average's year-to-date loss dwindled to 1.9%. It closed over 13000 for the first time since Jan. 3, which also marked the Dow's high so far in 2008.

In recent months, many speculators have piled into raw materials, especially oil, as an alternative to the stock market, which they viewed as risky in light of Wall Street's credit crisis and the broader economic slowdown. Many analysts have said that, at some point, those bets would likely be unwound in favor of a more traditional approach emphasizing broad-based stock portfolios.

[utherdoul]

Nope, can’t be true. The dollar will collapse and be replaced by the amero because of the Bush administration and we don’t manufactor anything except money and the euro is stronger than the dollar and will always be that way.

We’re all doomed.

[politicket]

We’re all doomed.

No, we're not all doomed, but I would be careful in your jubilation if I were you.

Have you ever looked at a "Gold-vs-Dow" chart? It's interesting from the perspective that it shows how much "money" (Gold) is needed to buy the "currency" that the Dow reflects. This chart shows that in "real money" the Dow has been falling for a long, long time, and our country will pay the price for that.

My $0.02 (in money, not currency) ;-)

[murdoog]

Bush’s fault

[Hop A Long Cassidy]

Also, S&P has lagged T-bill yields since 1998, according to Hussman’s report last week.

http://www.hussmanfunds.com/wmc/wmc080421.htm

[utherdoul]

well I don’t think things are perfect and that we have some rough times ahead of us, but the whole doom and gloom collapse that seems to pervade some of these debates gets tiresome.

[nicola_tesla]

And the fundamentals holding up this market are ... what ?

Has the Fed started supporting the dollar ? No.
Have real estate prices bottomed ? No.
Has the rate of foreclosures dropped ? No.
Is the consumer flush with cash ? No.
Is unemployment increasing or decreasing ? Increasing.
Are savings increasing or decreasing ? Decreasing.
Are credit card delinquencies up or down ? Up.
Is credit easy or tight ? Tight.

So where’s the good news this market sees ?

[politicket]

You forgot one, and it's the biggest..

Is the Fed on a massive power grab down to the state and local levels? Yes.

[Deo volente]

Markets are more psychological than they are logical. There’s a lot of wishful thinking about the dollar and the economy right now. There’s also a lot of soothing propaganda coming out from the government during this election year.

But eventually markets do reflect economic reality. I wouldn’t be rushing in to buy lots of stocks right now.

[ex-snook]

Some headlines from today’s news.

Fed rate cut benefits might be months away
Consumer spending up as prices soar
Exxon’s earnings rise, but miss estimates
U.S. automobile sales fell sharply in April
Airlines slow down flights to save on fuel
Oil prices slide; gas prices extend record

Schadenfreude.

[HappyinAZ]

Uh..actaully, real-estate is begining to sell here in AZ now...

Foreclosure rates are to expected since people over-extended and then borrowed back all the fake “equity” ...same people are running up the credit cards and fail to save....

Credit is beginning to ease with Fannie & Freddie doing “jumbo’s” now...

Hiring is up, unemployment rates are still very low....and seem to be in isolated pockets like MI.....

Credit isn’t “tight”...it “rational”....you should have to put 15-20% down to buy a house....

It’s a good day!

[muir_redwoods]

Profit taking tomorrow will wipe out most on today’s gains but not all. The trend is generally upward. Hold on. In a year or two we’ll all be subject to more of that “Irrational Exuberance” and “False Prosperity” we’ve heard so much about.

[ThePythonicCow]

Is the Fed on a massive power grab down to the state and local levels? Yes.

That's one of the markers of a down market - a good marker.

There is a coming wave of increased Federal regulation of financial markets and instruments (such as "not since the Great Depression"), an increasing attractiveness to the "soak the rich" populist rhetoric, and a coming (renewed) down turn in the market.

A year from now anyone who has been holding most stocks between now and then will look back and wish they had sold this week.

... just my prediction ... yes tiresome to those who disagree ... and a possible source of amusement to them, should I be proven wrong.

[politicket]

I went to cash in November and will probably be looking at some real-estate deals rather than stocks. Since 1974 the vast majority of people have had to plan for their own retirements since Defined Benefits plans were largely stopped. Many of these same people now work for companys that have "401(k)" plans, but aren't able manage the investment strategies to any large degree.

There is a major financial upheaval coming to this country. We have the "raise your taxes" Democrats on one side and the "increase our debt" Republicans on the other. Both sides are contributing to a sinking ship.

People that post on these boards and make all financial moves "politically based" and "MSM driven" have their heads in the sand. They need to start raising their financial intelligence and see the big picture.

[ThePythonicCow]

some real-estate deals

My guess is that it's too early for that.

Credit is still drying up; mortgages will become increasingly difficult to obtain; bubbles over correct and we're coming off a rather large bubble in mortgage backed securities. This will drive down real estate prices further. See further for example the section Zombification of Banks, near the bottom of the page Fed's New Role as Pawnbroker.

And when all is done and said, in a few years, the mortgage and real estate problems will look like just the first wave of a bigger storm. See for example The $24 Trillion Derivatives Monster, or The $300 Trillion Time Bomb. Don't ask me whether it's $24T or $300T ... I haven't figured them out yet. But either way, that's a bigger number than the Fed can cover. The bank failure rate will go up substantially.

I'm in the process of going all cash, with very selective investments, no debt, only renting, no mortgage and a standard of living that is a small fraction of what it was. The new BMW 5 series is now an old Hyundai Elantra (nice car). The $820,000 California home is now (closed as of last week) a $590 rent in North Texas (good folk). Cash assets are dispersed across several financial institutions and trust companies.

If there is another leg to this bubble, the more optimistic investors on this thread will an opportunity to laugh at my foolishness all the way to their prosperous banks. To be honest, I'll laugh too, even though I just missed out on some serious profits.

[ThePythonicCow]

Ah - the difference between the $24T and $300T estimated size of derivatives is the date. The $24T article was written on June 12, 2002. The $300T article was written on March 29, 2007. I wonder what an April 2008 article would estimate.

Let's see ... Bill Gross of PIMCO, at Pyramids Crumbling wrote in January 2008:

Total derivatives amount to over $500 trillion, many of them finding their way onto the balance sheets of SIVs, CDOs and other conduits of their ilk comprising the Frankensteinian levered body of shadow banks.

[ThePythonicCow]

For a recent introduction to the risks of derivatives to the world financial markets, see a Marketwatch article I just posted, at Derivatives the new 'ticking bomb'.

[ThePythonicCow]

I found a better article explaining derivatives and the risks they pose to use, posted at CREDIT DEFAULT SWAPS: DERIVATIVE DISASTER DU JOUR.