Newsletter of Economic and Market Events
-- RECENT FACTS -
RECORDS - DJIA trades off its all-time historic record 14279.96 [Oct 11 '07]. S&P 500 1,576 [Oct 11 '07], DJ Transportation [Jul 19 '07], DJ Utilities [May 21 '07], Mid Cap [Jul 13 '07], Small Cap [Jul 17 '07]. Global Markets hit $62.6 trillion (10/31/07): Europe 1,388 (MSCI Europe Index, Jul 13 '07), Asia 173 (MSCI Pacific Index, Nov 1 '07) and Latin American 5,862 (S&P Latin America 40, May 20 '08) markets trade at all-time historic highs.
U.S. Markets set new lows - DJIA falls 47.4% from 14,279 to 7,506.97 [10/11/07 - Nov 20], S&P 500 falls 52.6% from 1,576 to 747.78 [10/11/07 Nov 20] and
NASDAQ falls 54.0% from 2,861 to 1,314.90 [10/31/07 - Nov 20].
Next FOMC meeting announcement 11:15 PST Tuesday December 16.
World leaders summit (G20) in Washington DC (November 15) "to discuss the financial markets and the global economy" and "agree on a common set of principles" to reform global regulation of the markets: United States (George W. Bush, gdp $45,800), Canada (Stephen Harper , gdp $38,600), Australia (Kevin Rudd, gdp $37,300), United Kingdom (Gordon Brown, gdp $35,000), Germany (Angela Merkel, gdp $34,100), Japan (Tara Aso, gdp $33,500), France (Nicolas Sarkozy, gdp $32,600), Italy (Silvio Berlusconi, gdp $30,900), South Korea (Lee Myung-Bak, gdp $25,000), Saudi Arabia (Abdullah Bin Abdul Aziz, gdp $19,800), Russia (Dmitry Medvedev, gdp $14,800), Argentina (Cristina Fernandez de Kirchner, gdp $13,100), Mexico (Felipe Calderon, gdp $12,400), Turkey (Recep Tayyip Erdogan, gdp $12,000), South Africa (Kgalema Motlanthe, gdp $9,700), Brazil (Luis Inacio Lula, gdp $9,500), China (Hu Jintao, gdp $5,400), Indonesia (Susilo Bambang Yudhoyono, gdp $3,600), India (Manmohan Singh, gdp $2,600) and an European Union representative.
FDIC proposes a program applied to 4.4 million non-GSE mortgage loans using $24 billion from the EESA to save 1.5 million modified loans from foreclosure.
China announced a $586 billion (4 trillion yuan) economic stimulus package (almost 20% of China's 2008 gdp) - the plan bolsters low-rent housing, infrastructure in rural areas, roads, railways, airports, subsidies for farmers will be raised and tax deductions for purchases of fixed assets (machinery) to stimulate investment.
Barack Obama defeats John McCain to become 44th President of the United States.
Fannie Mae and Freddie Mac (own or back 31 million U.S. mortgages) modify mortgages: resident homeowners 90 days or more late, owe at least 90% of current value, have not filed for bankruptcy - payments would not exceed 38% of their monthly household income through interest rate adjustments and/or longer repayment schedules. Citigroup will modify 500,000 borrower's mortgages.
U.S. unemployment rate rises to 6.5%.
Japan promises $100 billion in loans to IMF raising their funding capacity to $250 billion - IMF provide a loan to Pakistan.
The Federal Reserve, CFTC and SEC announce that a central clearinghouse for the $33 trillion credit-default swap market will be running by December 31.
American Express (and AmEx Travel Related Services) becomes a bank-holding company.
European Central Bank cuts rates to 3.25% from 3.75%, Bank of England cuts to 3% from 4.5% (lowest level since 1955) and the Swiss National Bank cuts to 2% from 2.5%.
Oil trades $48.52 (Nov 20) down from an all-time high of $147.27 (Jul 11) - down 67.0% in 4 months.
EESA invests $125 billion in smaller regional banks: AIG ($40 billion and $60 billion credit facility, 52.5 billion MBS & CDO purchased), Federal Home Loan Mortgage Corp. ($13.8 billion), PNC ($7.7 billion), U.S. Bancorp ($6.6 billion), Capital One ($3.55 billion), SunTrust ($3.5 billion), Regions Financial ($3.5 billion), Fifth Third Bancorp ($3.4 billion), BB&T Corp. ($3.1 billion), KeyCorp ($2.5 billion), Comerica Inc. ($2.25 billion), Marshall & Ilsley ($1.7 billion), Northern Trust Corp. ($1.5 billion), Huntington Bancshares Inc. ($1.4 billion), Zions Bancorporation ($1.4 billion), Synovus Financial ($973 million), Popular Inc. ($950 million), First Horizon National Corp. ($866 million), ETrade Financial ($800 million), Associated Banc-Corp ($530 million), Webster Financial ($400 million), City National Corp. ($395 million), Fulton Financial ($375 million), TCF Financial ($361 million), South Financial Group ($347 million), Valley National Bancorp ($330 million), Wilmington Trust ($330 million), East West Bancorp ($316 million), Susquehanna Bancshare ($300 million), UCBH Holdings Inc. ($298 million), Whitney Holding Corp. ($282 million), Cathay General Bancorp ($258 million), First Merit Corp. ($248 million), Trustmark ($215 million), Umpqua Holdings Corp. ($214 million) and Washington Federal ($200 million) - banks borrowing over $200 million listed.
Banks and securities firms (Citigroup, UBS, Merrill, etc.) report over $693 billion of mortgage-related writedowns from subprime securities of an estimated $700-945 billion - while raising over $365 billion of new capital.
Earnings season for 4Q08 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 4Q08 is expected to be -2.0%.
Month of October 2008
Dow: 9,325
Dow month: -14.06%, 6 mo: -27.26%, ytd: -29.70%
S&P 500: 968
S&P 500 month: -16.98%, 6 mo: 30.11%, ytd: -34.06%
NASDAQ: 1,720
NASDAQ month: -17.74%, 6 mo: -28.69%, ytd: -35.14%
See chart
U.S. & International Markets set new lows - DJIA falls 44.8% from 14,279 to 7,882.51 [10/11/07 - Oct 10],
S&P 500 falls 46.7% from 1,576 to 839.80 [10/11/07 Oct 10] and
NASDAQ falls 47.8% from 2,861 to 1,493.79 [10/31/07 - Oct 24].
Global Markets fall from $62.6 trillion [10/31/07] to $29.4 trillion [10/27/08] losing $33.2 trillion: MSCI Europe Index falls 53.3% from 1,388 to 648.93 [7/13/07 - Oct 24],
MSCI Pacific Index falls 56.8% from 173.1 to 73.11 [11/1/07 - Oct 28] and
S&P Latin America 40 falls 67.2% from 5,862 to 1,920.02 [5/20/08 - Oct 27].
Japan's NIKKEI Index falls from 18,297 [6/20/07] to 6,994.90 Oct 28 - a 61.7% fall.
Germany's DAX Index falls from 8,131 [6/20/07] to 4,014.60 Oct 24 - a 50.6% fall.
Britain's FTSE Index falls from 6,754 [7/13/07] to 3,665.20 Oct 27 - a 45.7% fall.
France's CAC Index falls from 6,168 [6/1/07] to 2,959.29 Oct 24 - a 52.0% fall.
Canada's TSX Index falls from 15,154 [6/6] to 8,537.34 Oct 27 - a 43.6% fall.
Brazil's BOVESPA Index falls from 73,920 [5/29] to 29,435 Oct 27 - a 60.1% fall.
Russia's RTS Index falls from 2,498 [5/19] to 549.06 Oct 28 - a 78.0% fall.
India's Bombay SENSEX Index falls from 21,113 [1/9] to 7,697.39 Oct 27 - a 63.5% fall.
Shanghai Composite falls 72.8% from 6,124 (Oct 16 '07) to 1,664 (Oct 28) in 1 year - last year the Shanghai Composite was the best performer up 161%.
2008 Crash facts
FOMC easing stance - October 29 - Fed Funds rate cut of 0.50% to 1.00% from 1.50% the Discount rate is cut to 1.25% from 1.75%. "Recent policy actions, including todays rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain."
US GDP for 3Q was -0.3% the worst since 3Q01 of -1.4%.
Emergency FOMC inter-meeting (Oct 8) Fed funds cut of 0.50% to 1.50% from 2.00% the Discount rate is cut to 1.75% from 2.25% - ECB (European Central Bank) cuts by 0.5% to 3.75%, Bank of England cuts by 0.5% to 4.5 central banks of Switzerland, Canada, Sweden, China, Hong Kong, Taiwan, South Korea and Australia also cut rates.
Emergency Economic Stabilization Act of 2008 (EESA) a $700 billion rescue of financial institutions by purchasing devalued mortgage-linked assets (Paulson's Treasury Dept. will administer the Troubled Asset Relief Program, or TARP) - protection and tax beaks for taxpayers (equity positions in the financial institutions participating), limits on executive's compensation, independent oversight and transparency, help to prevent home foreclosures (modifying troubled loans), raises FDIC to $250k from $100k and an insurance option into which banks would pay. Federal Reserve receives authority to pay interest on reserves, the SEC receives the power to change mark-to-market accounting rules and the FDIC supports interbank lending.
EESA invests $125 billion in 9 large banks (10/26): $25 billion in each Citigroup, J.P. Morgan, Wells Fargo and Bank of America/Merrill Lynch, $10 billion in each Goldman Sachs and Morgan Stanley, $3 billion in Bank of New York Mellon and $2 billion in State Street. - with preferred stock (5% dividend for the first 5% years and then convert to 9%), warrants (right to buy common stock equal to 15% of the total investment in the firm) and compensation limitations.
Federal Housing Finance Agency orders Fannie Mae and Freddie Mac (FHFA is their new regulator) to purchase $40 billion a month of underperforming mortgage bonds - to promote greater stability and liquidity in the U.S. mortgage market.
G7 (United States, Japan, Germany, France, Italy, the United Kingdom and Canada) agrees to recapitalizing banks with public and private funds, insure depositors and unfreezing credit markets. G20 (G7 plus China, Brazil, Russia, India, Mexico, South Korea, Saudi Arabia, Argentina, Australia, Indonesia, South Africa and Turkey) commits to "using all the economic and financial tools to assure the stability and well functioning of financial markets" - they account for about 90% of global gross domestic product. IMF's 185 member nations endorse a commitment to "use all available tools" to prevent systemic failure. World Bank agrees to help developing countries strengthen their economies, bolster their financial systems and protect the poor against the financial turmoil in international markets.
IMF provides loans to Iceland, Ukraine, and Hungary - Britain was the last European country to receive an IMF loan in 1976.
15 leading European nations commit $2.3 trillion and agree to a 14pt plan to aid troubled banks by adding capital through investment and by guaranteeing inter-bank lending. European governments (Germany, Ireland, Sweden, Austria, Denmark, Iceland and Greece) guarantee all private savings accounts. European Union countries raised minimum guarantees for bank deposits to 50,000 while the ECB raised overnight lending to $250 billion. The United Kingdom (£50 billion and £450 billion in loan guarantees), Spain (100 billion), Russia ($36 billion), Portugal (20 billion), Norway ($55.4 billion), Sweden ($205 billion), German (500 billion), Netherlands (200 billion), Austria (85 billion), Switzerland ($60 billion) and France (360 billion) establish plans to support their domestic banking systems. Japan's package includes government guarantees for loans to businesses is $270 billion.
Oil trades $61.30 (Oct 27) down from an all-time high of $147.27 (Jul 11) - down 58.3% in 3 months. Gold trades $681 (Oct 27) down from an all-time high of $1033.90 (Mar 17) - down 34.1% in 7 months. CRB futures trade $350 (Oct 24) down from an all-time high of $618 (July 2) - down 43.3% in 3 months. U.S. dollar rallies to $1.23 (Oct 23) from $1.60 (Jul 15) - up 22% in 3 months.
SEC extends short selling ban of Financial stocks protecting 950 financial companies - through Oct 8.
VIX (volatility index, fear) new record high of 89.53 spiking 32% from 67.80 (Oct 24) - spiked 22% to 81.17 (Oct 16), spiked 19% to 76.94 (Oct 10) and spiked 29% to 58.24 (Oct 6). TED spread (3-month Treasuries and 3-month Eurodollars) trades at 4.64% and the Libor-OIS spread (3-month London interbank offered rate and Overnight indexed swap rates) trades at record 3.64% on October 10.
Federal Reserve increased currency swaps with foreign central banks to $620 billion and increased the Term Auction Facility, the Fed's emergency loan program, to $900 billion - to easy liquidity problems. Federal Reserve begins to purchase U.S. commercial paper from U.S. companies and Money market funds - a $1.8 trillion market (90-day unsecured at 1.88% plus a 1% credit surcharge and 90-day secured asset-backed rate at 3.88%, 10/27).
Wachovia will be purchased by Wells Fargo (as Citigroup exits) in an $11.7 billion all-stock offering.
Lehman's bankrupcy sets their credit-default swap liability to counterparties at $0.91375 creating $270 billion in payments. Washington Mutual's credit-default swap liability to counterparties is $0.43.
CERN lauches the GRID to analyze data from the Large Hadron Collider (LHC) a computer network that links more than 100,000 processors at 140 global institutes - in 1990 CERN invented the World Wide Web allowing access to information over the Internet.
Bank of America modifies (cuts interest rates and/or principal) 265,000 mortgages and 400,000 of acquired Countrywide's mortgages - the largest predatory lending settlement, $8.6 billion. J.P. Morgan Chase will modify 400,000 borrower's mortgages from their acquisition of Washington Mutual.
Earnings season for 3Q08 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 3Q08 is expected to be -5.6%.
Month of September 2008
Dow: 10,850
Dow month: -6.00%, 6 mo: -11.52%, ytd: -18.20%
S&P 500: 1,166
S&P 500 month: -9.05%, 6 mo: -11.80%, ytd: -20.57%
NASDAQ: 2,091
NASDAQ month: -11.66%, 6 mo: -8.25%, ytd: -21.15%
FOMC neutral stance - September 16 - Fed Funds rate remains 2.00% and the 'discount rate' remains 2.25%.
FHFA (Federal Housing Finance Agency) places Fannie Mae (with Herb Allison of TIAA-CREF) and Freddie Mac (with David Moffett of U.S. Bancorp) into conservatorship - dividends on both the common and preferred shares will be eliminated. Interest and principal payments will continue to their companies' securitized bonds and subordinated debt. The Treasury will 'backstop' both agencies with up to $100 billion (each) of a special class of stock - the Treasury through senior preferred stock and warrants will own 79.9% of each agency. Their portfolios "shall not exceed $850 billion as of 12/31/09, and shall decline by 10% per year until they reach $250 billion" - Fannie's is $758 billion and Freddie's is $798 billion.
U.S. 10yr Treasuries rally from 4.32% (Jun 13) to 3.25% (Sep 16) - up 24.7% in 9 weeks.
Short selling by Hedge funds of $100 million must now report positions to the SEC. SEC halts short selling of Financial stocks (Sep 19, effective immediately) protecting 799 financial companies - through Oct 2. SEC issues rules for short sales requiring delivery of securities by the settlement date, effective Sep 18. Britain's Financial Services Authority (& other Global exchanges) banned short-selling of financial stocks from Sep 18 - Jan 16, 2009.
Federal Reserve approves Goldman Sachs and Morgan Stanley to become bank holding companies - ending independent investment banks. Paulson's Treasury Dept. protects US money market mutual funds with insurance (using a $50 billion fund) - as some of the $3.6 trillion of funds 'broke the buck'. Federal Reserve broadens eligible collateral - previously, only Treasury securities, Agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged.
U.S. unemployment rate rises to 6.1%.
Lehman Brothers, the fourth-largest U.S. investment bank, files for the largest U.S. bankruptcy - listed total debts of $613bn.
Merrill Lynch, the third-largest U.S. investment bank, is purchased by Bank of America for $50 billion.
AIG ($1.1 trillion assets and 74 million clients in 130 countries) receives an $85 billion Federal Reserve loan in return for relinquishing 79.9% percent ownership in the company.
Washington Mutual is seized by federal regulators and sold to J.P. Morgan Chase for $1.9 billion - the largest bank failure in U.S. history, $307 billion in assets.
The nationalisation of Bradford and Bingley (joins Northern Rock as U.K.'s 2nd mortgage lender) and rescues for European lenders Fortis (Benelux's banking and insurance group), Hypo Real Estate (Germany's real estate firm), Glitnir (Iceland's third-largest lender) and Dexia (Franco-Belgian's bank, world's biggest lender to European local governments).
Hurricane Gustav (Sep 1) made landfall in Louisiana (near New Orleans) and Hurricane Ike (Sep 13) made landfall on Galveston Island causing 145 deaths and $31.5 billion of damage - the 3rd most destructive U.S. hurricane (behind Katrina 2005 and Andrew 1992).
Largest U.S. securities fraud settlement - Enron shareholders and investors will share $7.2 billion: payments from CIBC ($2.4 b), JPMorgan Chase ($2.2 b), Citigroup ($2 b) and approximately $600 million from Arthur Andersen, Lehman and Bank of America.
Month of August 2008
Dow: 11,543
Dow month: 1.45%, 6 mo: -5.59%, ytd: -12.97%
S&P 500: 1,282
S&P 500 month: 1.18%, 6 mo: -3.61%, ytd: -12.67%
NASDAQ: 2,367
NASDAQ month: 1.81%, 6 mo: 4.23%, ytd: -10.75%
FOMC neutral stance - August 5 - Fed Funds rate remains 2.00% and the 'discount rate' remains 2.25%.
UBS agrees to buy back $18.6 billion in failed auction-rate securities, Merrill Lynch agrees to $12 billion, Wachovia $9 billion, Citigroup $7.3 billion, Morgan Stanley $4.5 billion, Bank of America $4.5 billion, JPMorgan Chase $3 billion and Royal Bank of Canada $850 million - about $330 billion of auction-rate securities are outstanding.
U.S. unemployment rate rises to 5.7%.
Genentech rejects Roche Holding's $43.7 billion offer.
2008 Beijing Summer Olympics begins with 100 heads of state in attendance, 204 nations participate (87 nations win medals) - Michael Phelps wins a record eight Olympic gold medals (totaling 14 career golds), Natalie Coughlin wins 6 medals and Usain Bolt wins three golds. The United States takes a total of 110 medals while China takes the most golds, 51. Great Britain takes 47 medals 19 are gold heading into the 2012 London games.
Month of July 2008
Dow: 11,378
Dow month: -7.87%, 6 mo: -10.06%, ytd: -14.22%
S&P 500: 1,267
S&P 500 month: -1.02%, 6 mo: -8.06%, ytd: -13.69%
NASDAQ: 2,325
NASDAQ month: 1.44%, 6 mo: -2.68%, ytd: -12.33%
Markets set new lows - DJIA falls from 14,279 to 10,731 (Oct 11 - July 15, 23.6%) S&P 500 from 1,576 to 1,200 (Oct 11 Jul 15, 22.4%). Bombay Sensex falls 41% from 21,206 (Jan. 10) to 12,514 (July 16).
The Fed allows GSEs (government sponsored enterprises) Fannie Mae and Freddie Mac access to their discount window - they guarantee $5.4 of $12 trillion of U.S. mortgages.
SEC issues an emergency rule (July 21 - August 12) to limit naked short selling in 19 major financial firms - the 'tick test rule' was repealed on July 6, 2007.
Housing bill signed into law: creating the FHFA (Federal Housing Finance Agency, GSE's regulator) for Fannie Mae and Freddie Mac (increasing limits to $625,500 from $417,000), modernizes/authorizes the FHA to insure up to $300 billion in refinanced mortgages, creates an affordable housing trust fund and $15 billion of home buyer's tax credits (States can offer an additional $11 billion to refinance subprime loans while increasing down payments to 3.5% from 3%) and grants $3.9 billion to buy and rehabilitate foreclosed homes.
U.S. Dollar trades an all-time low of $1.6038 (July 15) to the Euro falling from $0.8228 (October 26, 2000) a 95% decline.
Oil trades $147.27 an all-time high - July 11. Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high $618 - July 2.
ECB raises interest rates to 4.25% - the 9th increase for the Euro since 12/05.
IndyMac Bancorp is seized from imminent failure by the Office of Thrift Supervision (FDIC, second only in size to Continental Illinois, 1984).
Federal Reserve's new regulations for mortgage lenders: banning repayment penalties, prohibiting lenders from issuing loans to borrowers that cannot repay while requiring the verification of their incomes and assets, and requiring escrow accounts for property taxes and homeowner's insurance, as well as: actual appraisal of a home's value and good faith lending practices.
InBev buys Anheuser Busch for $49.9 billion to become the world's biggest brewer.
Earnings season for 2Q08 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 2Q08 is expected to be negative -22.1% for the fourth consecutive quarter - without financials 4.5%.
Month of June 2008
Dow: 12,350
Dow month: -2.28%, ytd: -6.89%, 6 mo: -6.89%
S&P 500: 1,280
S&P 500 month: -8.57%, ytd: -12.81%, 6 mo: -12.81%
NASDAQ: 2,292
NASDAQ month: -9.12%, ytd: -13.57%, 6 mo: -13.57%
FOMC neutral stance - June 25 - Fed Funds rate remains 2.00% and the 'discount rate' remains 2.25%.
U.S. unemployment rate rises to 5.5%.
U.S. 10 yr. Treasuries fall 31% from 3.29% (Mar 17) to 4.32% (Jun 13) - in 3 months.
Federal Reserve, Regulators and 17 banks agreed to changes in the clearing of credit-default swaps, a $62 trillion market - insuring against the failure of any one bank.
Treasury Secretary Henry Paulson recommends an overhaul of Financial Regulation: designating the Fed as the primary regulator for market stability (including oversight of investment banks), creating one bank regulator by combining the Office of Thrift Supervision to the Office of the Comptroller of the Currency, merging the Securities and Exchange Commission with the Commodity Futures Trading Commission, and creating a national regulator for insurance companies.
U.S. home prices fell for the eighth consecutive quarter by 15.9% (compared to 2Q07) - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 167.69.
Month of May 2008
Dow: 12,638
Dow month: -1.42%, ytd: -4.72%, 6 mo: -5.48%
S&P 500: 1,400
S&P 500 month: 1.08%, ytd: -4.63%, 6 mo: -5.47%
NASDAQ: 2,522
NASDAQ month: 4.56%, ytd: -4.90%, 6 mo: -5.19%
Yahoo rejects Microsoft's offer of $44.6 billion to challenge Google.
Myanmar/Burma Cyclone Nargis on May 2, 2008 is responsible for over 134,000 fatalities.
2008 Sichuan, China earthquake (8.0) on May 12, 2008 is responsible for over 69,000 fatalities.
Month of April 2008
Dow: 12,820
Dow month: 4.55%, ytd: -3.35%, 6 mo: -7.97%
S&P 500: 1,385
S&P 500 month: 4.77%, ytd: -5.65%, 6 mo: -10.59%
NASDAQ: 2,412
NASDAQ month: 5.84%, ytd: -9.05%, 6 mo: -15.63%
FOMC Easing move - April 30 - Fed Funds rate to 2.00% from 2.25% and the 'discount rate' to 2.25% from 2.50%.
Bank of England (BOE) follows Fed's lead with $100 billion swap of mortgage securities for BOE government bonds - the move is to encourage credit markets and bank lending.
U.S. Dollar trades $1.60 to the Euro falling from $0.82 (Oct '00) a 95% decline in little more than 7 years.
Earnings season for 1Q08 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 1Q08 was negative -17.5% for the third consecutive quarter - without financials 7.2%.
Month of March 2008
Dow: 12,262
Dow month: 0.29%, ytd: -7.55, 6 mo: -11.75%%
S&P 500: 1,322
S&P 500 month: -0.60%, ytd: -9.95%, 6 mo: -13.37%
NASDAQ: 2,279
NASDAQ month: 0.35%, ytd: -14.06%, 6 mo: -15.62%
Markets set new lows - S&P 500 from 1,576 to 1,256 (Oct 11
Mar 17, 20.3%), NASDAQ from 2,861 to 2,155 (Oct 31 - Mar 17, 24.7%), and MSCI
Pacific Index from Oct 31 to Mar 17 (23.0%).
Emergency FOMC inter-meeting (Mar 16) Discount rate cut of 0.25% to 3.25% from 3.50% - 25 basis points above the Fed funds rate of 3.00%. The Fed allows the 20 primary dealers of U.S. Treasury securities (non-commercial / investment banks) access to their discount window.
FOMC Easing move - March 18 - Fed Funds rate to 2.25% from 3.00% and the 'discount rate' to 2.50% from 3.25%.
U.S. 10 yr. Treasuries rally 38% from 5.32% (Jun 13) to 3.29% (Mar 17) - in 9 months.
Gold trades $1033.90 an all-time high - Mar 17. Platinum trades at all-time high of $2308.80 - Mar 4. Silver trades $21.44 (Mar 17) matching its highest level, December 1980. Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high $579.95 - Mar 5.
Bear Stearns is purchased by JP Morgan Chase for $10 (down from $172, 2007) - the Fed intervenes (non-recourse loan of $29 billion) in the protection of investment banking for the first time since the 1930s.
U.S. home prices fell for the seventh consecutive quarter by 14.4% (compared to 1Q07) - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 172.16.
VISA becomes the largest U.S. IPO ever at $17.86 billion - surpassing the $10.62 billion record held by AT&T in 2000.
Month of February 2008
Dow: 12,226
Dow month: -3.35%, ytd: -7.83%, 6 mo: -8.47%
S&P 500: 1,330
S&P 500 month: -3.48%, ytd: -9.40%, 6 mo: -9.71%
NASDAQ: 2,271
NASDAQ month: -4.94%, ytd: -14.37%, 6 mo: -12.52%
$168 billion Stimulus plan signed into law - Tax rebates (to over 130 million Americans), Business tax breaks and Housing provisions (Fannie Mae and Freddie Mac may temporarily purchase mortgages up to $793,000 up from $417,000 while the FHA can insure loans for up to $729,000).
U.S. Dollar trades $1.52 to the Euro falling from $0.82 (Oct '00) a 85% decline in little more than 7 years.
NASDAQ OMX Group becomes the world's largest exchange - operations of over 60 exchanges in 50 countries.
Month of January 2008
Markets fall most since 9/11 - DJIA falls from 14,279 to 11,508 (Oct 11 - Jan 22, 19.4%), S&P 500 from 1,576 to 1,270 (Oct 11 - Jan 23, 16.3%), NASDAQ from 2,861 to 2,202 (Oct 31 - Jan 23, 23%), MSCI Europe Index from Oct 31 to Jan 23 (23.3%),
MSCI Pacific Index from Oct 31 to Jan 22 (22.1%) and Latin American from Oct 31 to Jan 22 (26.2%).
Emergency FOMC inter-meeting (Jan 22, first since Sept. 17, 2001) Fed funds rate cut of 0.75% to 3.5% from 4.25% - biggest rate cut by the Fed since October 1984.
FOMC Easing move - January 30 - Fed Funds rate to 3.00% from 3.50% - first time since 1914 that the Fed made 2 rate cuts in 10 days.
U.S. unemployment rate rises to 5%.
Oil trades above $100 for the first time, $100.09 - Jan 3.
Countrywide Financial is purchased by Bank of America for $4.1 billion.
NYSE Euronext agrees to buy the American Stock Exchange.
CME Group (Chicago Mercantile Exchange and Board of Trade, merged July 2007) bid $11 billion for Nymex (NY Mercantile Exchange) the world's largest physical commodity futures exchange, 130 years old and went public in Nov '06.
Earnings season for 4Q07 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 4Q07 was negative -25.1% for the second consecutive quarter - without financials 12.1%, the worst quarterly performance since 1991.
Best Investments in 2007
U.S. Total stock market returned 6% in 2007, Stocks have underperformed while Bonds were above their historic average and inflation was above average (4.1%). Most gains for the year were punctuated by sell-offs in February/March (NASDAQ -7.9%), July/August (NASDAQ -12.4%) and November (NASDAQ -11.2%).
Of the 4 largest sectors in the U.S. Economy: Natural Resources performed best 32% followed by Technology (14%) and Health (6%) while Financials (-21%) returns were negative. By size: Mid Cap performed best 7% followed by Large Cap (6%) while Small Cap (-1%) and Micro Cap (-9%) had negative returns.
Of the World’s largest economic regions: Asia driven by China (CSI 300 index 161% / Shanghai 96% / Hong Kong 39%) / India (46%) performed best followed by Latin America (46%) and Europe (9%). Of the World’s largest Developed non-U.S. Economies: Germany returned 22%, Canada (7%), Britain (4%), France (1%) while Japan (-11%) was negative. In the Emerging markets which returned 32%: Brazil and Eastern Europe-Russia (added to the returns of China, India, etc.). Hedge funds returned on average less than 5% with private-equity outperforming hedge funds - PE had problems in fourth quarter acquiring funding.
Those who diversified with MPT did best, a trend which should accelerate – indicative are the returns of non-U.S. markets just mentioned. U.S. returns in 2007 were muted because of the 'credit crisis' caused by non-performing, non-prime U.S. mortgage loans.
Separate yourself and your performance from retail investors by using Modern Portfolio Theory (MPT) and Tactical Portfolio Optimization. Institutional investors have for decades spread their investments across many asset classes seeking higher returns. Underperformance is caused by confining your investments to a few similar asset classes and neglecting risk management.
News in 2007
The Federal Reserve FOMC cut inter-meeting 8/17 - the 'discount rate' to 5.75% from 6.25% citing tighter credit and shaken financial markets. Central banks in the U.S., Europe and Asia had injected more then $400 billion (Aug 9-16) into the banking system providing liquidity to global credit markets. Libor traded up to 240 bps over 3-month Fed funds rate. The 'Fed Funds rate' currently stands at 4.25%.
U.S. 10 yr Treasuries end the year at 4.03%. The U.S. inverted yield curve ended Jun 7 '07 it began on Dec 27 '05 (75 weeks) - the last U.S. Bond yield inversion was from Feb 24, '00 - Dec 22, '00, 8th time since 1980. Investors shied away from shorter U.S. Treasury maturities impacting global debt markets (10 yr typically exceeds 2 yr yields by aprox. 90 bps). Inversions had averaged 30 weeks (9 to 59 weeks) and -46 bps (-8 to -133 bps). The "carry-trade" (borrowing in low-interest rate countries) fueled M&A activity worldwide.
U.S. Treasuries returned an average of 8.7% in 2007 - compared with 3.0% in 2006, 2.9% in 2005, 3.5% in 2004 and 2.3% in 2003. The U.S. 10 yr. Treasuries rallied 27.8% from 5.32% (Jun 13) to 3.84% (Nov 26) - in 23 weeks.
Congress, Federal Reserve and other Federal agencies proposed new guidelines for subprime mortgage loans (7.5 million and approximately 5 million Alt-A or non-traditional / non-prime loans) because of growing delinquencies, foreclosures and bankruptcies. Effecting over 2 million Americans with over $1.9 trillion of subprime mortgage loans.
U.S. GDP in 2007 advanced by 2.2%. GDP advanced by 3.3% in 2006, 3.2% in 2005, 4.4% in 2004, 3.0% in 2003 and 1.9% in 2002.
2007 sales of single-family homes declined 13% and prices dropped 1.8% - the first decrease since 1968 and probably since the 1930's (NAR records began in 1968).
$100 billion in reported losses at more than 20 of the world's largest banks and securities firms holding SIVs (Structured Investment Vehicles holding non-performing, non-prime U.S. motgage loans).
Dollar ends the year at $1.46 - traded $1.49 (Nov 23) to the Euro – falling from $1.17 (Dec '05) a 26% depreciation in 2 years. British pound hits a 26-year high trading above $2.11 to the dollar while the Canadian dollar traded above $1.10.
Total global foreign-exchange reserves surpass $6 trillion - the U.S. dollar accounts for 63% while the Euro accounts for 27%.
Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high $479.50 (Dec 31) up 26% in
2007.
Oil ends the year at $96 - traded at an all-time high of $99.29 (Nov 21) - up almost 100% from Jan '07 lows.
Gold ends the year at $838 - traded $848 (Nov 7) - highest in 27 years (when it traded 2 days above $800, 1/18/80, $835 and 1/21/80, $850). Platinum trades at all-time high of $1551.50 (Dec 26). Silver traded $15.90 matching its highest level in December 1980. Uranium traded at an all-time high of $136.
U.S. venture capital climbed to a 6 year high of $29.4 billion in 2007 (3,813 deals), $26.6 billion in 2006 up from $19.7 billion in 2003 - $40.6 billion in 2001 (4,500 deals).
China's CSI 300 index surged 161% - the Chinese stock market overtook the Japanese market (8/07) in capitalization. The Shanghai Composite Index rallied from below 1000 (Jun 6 '05) to 6,124 (Oct 16, '07) more than 512%, in little more than 2.3 years - as over $2.3 trillion of Chinese savings (earning less than 3%) flooded into Chinese stocks. PetroChina became the first $1 trillion company as it debuted on the Shanghai Exchange, 11/5 (Exxon Mobil is valued at $475 billion). The People's Bank of China raised borrowing and lending rates in order to cool inflation. Additionally, the Chinese government reduced the tax on personal savings and raised bank reserve requirements to encourage savings and curb a possible asset bubble. 60 million brokerage accounts were opened in 2007.
China adds gold (also aluminum and steel) becoming the world's largest producer - 276 metric tons of gold in 2007 overtaking South Africa (largest producer since 1905).
BRIC emerging markets - Brazil became the last member to reach $1 trillion in overall stock market value. Russia surpassed $1 trillion in September of 2006, then China (1/07) and India (5/07).
Global mergers and acquisitions exceed $4.4 trillion - a record surpassing the $3.55 trillion in 2006.
Sovereign wealth funds 2007 high-profile purchases: China $20 billion in China Development Bank (Dec. 31), Singapore up to $5 billion in Merrill Lynch (Dec. 24), Singapore $9.75 billion and undisclosed Middle Eastern $1.8 billion in UBS (Dec. 10), Abu Dhabi $7.5 billion in Citigroup (Nov. 26), China $2.7 billion in China Everbright Bank (Nov. 7), Abu Dhabi $1.1 billion in Och-Ziff (Oct. 29), China $1 billion in Bear Stearns (Oct. 22), Qatar 20% of the London Stock Exchange and 10% in the Nordic bourse (Sept. 20), Abu Dhabi $1.35 billion in Carlyle Group (Sept. 20), China $3 billion and Singapore $2 billion in Barclays (July 23), Abu Dhabi $750 million in ICICI Bank (India's largest bank) (July 13), China $3 billion in Blackstone Group (May 20) and Abu Dhabi undisclosed stake in HSBC (May 2).
Earnings for S&P 500 companies in the 3rd quarter of 2007 was negative for the first time since Q4 2001 - Q1 2002.
UAW workers at General Motors, Ford & Chrysler (Cerberus Capital Management) divested their multi-billion dollar health care obligation to a UAW-run VEBA trust.
ECB raised interest rates to 4% - the 8th increase for the Euro since Dec '05. The Bank of England raised rates up to 5.75% and the Bank of Japan raised interest rates from 0.25% to 0.50%.
Europe (24 markets, including Russia and eastern Europe) at $15.7 trillion passes U.S. in stock market value ($15.6 trillion) for the first time since WWI.
Nearly 4,000 U.S. soldiers lose their lives in Iraq - the Vietnam War claimed 58,000 American lives, the Korean War 36,000 and World War II 405,000.
Steriods dominated Major League, Olympic and International sports as Barry Bonds, Marion Jones, Flyod Landis and many other faced accusations / reprisals.
Month of December 2007
FOMC Easing move - December 11 - Fed Funds rate to 4.25% from 4.50%.
Federal Reserve announces an agreement with the European Central Bank, Bank of England, Bank of Canada and the Swiss National Bank creating a (temporary) auction facility (establishing temporary swap arrangements) providing reserves for up to 6 months - to "help promote the efficient dissemination of liquidity" when other lines of credit are "under stress."
European Central Bank (ECB, Dec 17) injects a record €348.6 b ($501.5 billion) lending (unlimited) to all banks submiting bids of at least 4.21% for 2-week funds at its weekly refinancing auction.
Wheat trades at all-time high above $10-a-bushel (Dec 17).
U.S. home prices fell for the sixth consecutive quarter 5.8% (NAR, compared to 4Q06) sixth consecutive quarter of price declines in national home prices - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 185.03.
China adds gold (also aluminum and steel) becoming the world's largest producer - 276 metric tons of gold in 2007 overtaking South Africa (largest producer since 1905).
U.S. Mortgage lenders have agreed to freeze the interest rates on adjustable-rate (subprime) mortgages for 5 years for mortgages written between January 2005 and July 2007 - FHASecure also offers relief to borrowers.
Month of November 2007
U.S. 10 yr. Treauries rally 27.8% from 5.32% (Jun 13) to 3.84% (Nov 26) - in 23 weeks.
Oil trades at an all-time high of $99.29 - up over 43% in 10 weeks.
Gold trades $848 - highest in 27 years when it traded 2 days above $800 (1/18/80, $835 and 1/21/80, $850). Silver trades $15.90 matching its highest level (December 1980).
Shanghai Composite Index loses 21.9% from its high of 6,124 (Oct 16) to 4,778 (Nov 28) and Hong Kong Hang Seng Index loses 19% from its high of 31,958 (Oct 30) to 25,861 (Nov 22). PetroChina becomes the first $1 trillion company (as it debuted on the Shanghai exchange, 11/5) - Exxon Mobil is valued at $475 billion.
Month of October 2007
FOMC Easing move - October 31 - Fed Funds rate to 4.50% from 4.75%.
Uranium falls from an all-time high of $136 to $75 - a 45% drop in 4 months.
Royal Bank of Scotland offers $101 billion for ABN Amro ($3.1 trillion of assets) - in the largest bank takeover ever.
Earnings season for 3Q07 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 3Q07 is -4.5%, negative for the first time since Q401-Q102.
Month of September 2007
FOMC Easing move - September 18 - Fed Funds rate lowered 50 basis points to 4.75% from 5.25% and the 'discount rate' to 5.25% from 5.75%.
U.S. 10 yr. Treauries rally 18.4% from 5.32% (Jun 13) to 4.30% (Sep 10) - in 12 weeks.
U.S. home prices down -2.0% in 3Q07 (NAR, compared to 3Q06) fifth consecutive quarter of price declines in national home prices - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 195.68.
73,000 UAW workers strike General Motors for 2 days (first nationwide strike since 1970) - GM removes a $51 billion health care obligation to a UAW-run VEBA trust (funded with $35 billion).
Month of August 2007
Federal Reserve cut (inter-meeting, 8/17) the 'discount rate' to 5.75% from 6.25% citing tighter credit and shaken financial markets. Central banks in the U.S., Europe and Asia had injected more then $400 billion (Aug 9-16) into the banking system providing liquidity to global credit markets. Libor trades up to 95bp over 3-month Fed funds rate.
Chinese stock market ($4.72 trillion) overtakes the Japanese market ($4.7 trillion) in capitalisation - Shanghai Composite Index rallies from below 1000 (Jun 6 '05) to 5,235 (Aug 31) more than 423%, in little more than 2 years.
Month of July 2007
CME (Chicago Mercantile Exchange) purchases the CBOT (Chicago Board of Trade) consolidating futures and options trading in a $11.9 billion merger.
People's Bank of China raised interest rates to 3.33% from 3.06% and the lending rate to 6.84% from 6.57% - in order to cool inflation (5th increase in 15 months). Additionally, the government reduced the tax on interest income (5% from 20%, effective 8/15) and raised bank reserve requirements to 12% from 11.5% to encourage savings and curb possible asset bubbles.
Ontario Teachers' Pension Plan agreed to purchase a 52% interest in Canada's largest phone company, BCE Inc., in the largest buyout ever, $48.5 billion. Also, Canadian's Alcan agrees to Australia's Rio Tinto bid of $38.1 billion.
J.K. Rowling releases her 7th and final Harry Potter book becoming the first billion dollar author.
Earnings season for 2Q - the growth rate for the S&P 500 index was 7.7%.
Month of June 2007
ECB raises interest rates to 4% - the 8th increase for the Euro since 12/05. Bank of England to raise rates to 5.75% next month (5th increase since 8/06).
U.S. home prices down -1.5% in 2Q07 (NAR, compared to 2Q06) fourth consecutive quarter of price declines in national home prices - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 199.44.
BRIC emerging markets - Brazil becomes the last member to reach $1 trillion in overall stock market value. Russia surpassed $1 trillion in September of 2006, then China (1/07) and India (5/07).
Blackstone Group becomes the first large U.S. private equity firm to go public - valuing the firm at $33.5 billion.
U.S. inverted yield curve ends Jun 7 '07 it began on Dec 27 '05 (75 weeks) - the last U.S. Bond yield inversion was from Feb 24, '00 - Dec 22, '00, 8th time since 1980. Investors shied away from shorter U.S. Treasury maturities impacting global debt markets (10 yr typically exceeds 2 yr yields by apr. 90 bps). Inversions had averaged 30 weeks (9 to 59 weeks) and -46 bps (-8 to -133 bps). The "carry-trade" (borrowing in low-interest rate countries) fuels M&A activity worldwide.
Month of May 2007
S&P 500 closes above its all-time closing high - despite the fact that Technology (60% lower) and Telecom (44%) sectors still remain lower than their March 2000 high.
Daimler sells 80.1% controlling interest in Chrysler to private-equity firm Cerberus Capital Management for $7.4 billion.
Shanghai Composite Index rallies 100% in 113 trading days (200% in the past 12 months) - from below 2,000 (Nov 29) to above 4,000 (May 9) as some of $2 trillion of Chinese savings (earning less than 3%) flood into stocks (more than 100 million brokerage accounts are now open, 25 million opened ytd).
Month of April 2007
U.S. Dollar trades $1.37 to the Euro – falling from $1.17 (12/05) a 17% depreciation in 17 months. British pound hits a 26-year high trading above $2 to the dollar.
Europe (24 markets, including Russia and eastern Europe) at $15.7 trillion passes US in stock market value ($15.6 trillion) for the first time since WWI.
Toyota
overtakes General Motors (2.35m cars and trucks sold to 2.26m units) in the first quarter of 2007 - ending GM's 76 year reign as the world’s largest carmaker.
Earnings season for 1Q - the growth rate for the S&P 500 index was 7.9%. The 1Q07 marks the end of 3½ years of double-digit earnings growth. In U.S. corporate history 14 quarters of consecutive double-digit earnings growth for the S&P 500 index was a record.
Month of March 2007
U.S. home prices down -1.4% in 1Q07 (NAR, compared to 1Q06) third consecutive quarter of price declines in national home prices - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 201.01.
Federal Reserve (and other Federal agencies) propose new guidlines for subprime mortgage loans (7.5 million and aproximately 5 million Alt-A or nontraditional loans) because of growing delinquencies, foreclosures and bankruptcies.
European Central Bank (ECB) raised interest rates to 3.75% from 3.50% (7th time since 12/05) for 13 European nations.
Month of February 2007
Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high above $414. Uranium trades $85/lb, Nickel and Lead trade at new record highs.
Bank of Japan raises interest rate from 0.25% to 0.50%.
TXU, the largest power producer in Texas, goes private in largest leveraged buy-out & private equity deal in U.S. corporate history at $45 billion.
Fortress Investment becomes the first U.S. hedge fund to be listed and traded publicly.
The Blackstone Group buys Equity Office Properties Trust for $39 billion - surpassing the HCA deal for $33 billion (Nov '06).
Month of January 2007
Oil futures trade below $50 for the first time since May '05.
Earnings season for 4Q - the growth rate for the S&P 500 index was 11.6%. The 4Q06 will mark the 14th consecutive quarter of double-digit earnings growth for the S&P 500 index. In U.S. corporate history 14 quarters (of consecutive double-digit earnings growth) is a record.
Best Investments in 2006
U.S. Total stock market returned 14% in 2006, while Treasuries averaged 3% and Inflation averaged 3.0%. Stocks outperformed while Bonds were below their historic average and inflation was near average. Most gains for the year were accumulated in the second half of 2006.
Large Cap performed best 16% followed by Small Cap (15%) and Micro Cap (15%) while Mid Cap stocks returned only 10%. Financial stocks performed best 19% while Technology (10%), Natural Resources (10%) and Health (7%) returns were less impressive.
Of the World’s largest economic regions Latin America performed best 42% followed by Europe (33%) and Asia-Pacific (22%). Of the World’s largest Developed non-U.S. economies Germany returned 22%, France (17%), Canada (15%), Britain (11%) and Japan (7%). In the Emerging markets which returned 29%: China, Eastern Europe-Russia and India continue to excel. Hedge funds (8,000, controling $1.3 trillion) and private-equity firms (over $700 million) - returned on average 13% with private-equity generally outperforming hedge funds.
Those who diversified with MPT did best, a trend which should accelerate – indicative are the returns of non-U.S. markets just mentioned. Returns in 2006 were strong aided by historic corporate earnings, low unemployment and borrowing costs.
Separate yourself and your performance from retail investors by using Modern Portfolio Theory (MPT) and Tactical Portfolio Optimization. Institutional investors have for decades spread their investments across many asset classes seeking higher returns. Underperformance is caused by confining your investments to a few similar asset classes and neglecting risk management.
2006 complete News (click)
U.S. unemployment rate falls to 4.4%.
U.S. residential housing market cools from its record unsustainable (price) growth rate - over $1.9 trillion of ARMs will reset at higher interest rates in 2007-08 ($11 trillion mortgage loans outstanding).
FOMC Tightening Cycle - Fed Funds rate increases to 5.25% (17 consecutive increases). Fed Funds rate began the year at 4.25% (Fed Funds was 1% from Jun '03 - Jun '04 and 6.5% from May '00 - Jan '01).
U.S. 10 yr Treasuries end the year at 4.71% - trades 5.24% (Jul 5). U.S. inverted yield curve tests markets worldwide (began, Dec 27 '05 - first time since Feb 24, '00 - Dec 22, '00, 8th time since 1980). U.S. Treasuries returned an average of 3.0% in 2006 - compared with 2.9% in 2005, 3.5% in 2004 and 2.3% in 2003.
U.S. GDP in 2006 advanced by 3.3%. GDP advanced by 3.2% in 2005, 4.4% during 2004, 3.0% during 2003 and 1.9% in 2002.
United States (as a nation) for the first time since 1915 owns less assets oversees than foreigners own of U.S. assets - a trend which is expected to increase.
Dollar ends the year at $1.32 to the Euro – falling from $1.18 at the beginning of the year an 11% depreciation.
Oil ends the year at $61 - trades $77.03 (7/10) an all-time cash high - up from $10 (Dec '98). Oil started the year at $60.
Gold ends the year at $636 - traded $732, highest since February 1980, when Gold spent 3 weeks above $700. Platinum traded $1335 and Copper traded $4.03/lbs at all-time cash highs. Silver traded $15.21 - highest since February 1983. Uranium (actually more common than silver) rose
more than 10-fold from $7.10/lb (1/01) to $72/lb.
Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high above $409 (Dec '06).
World’s financial stock of the 5 wealthiest: US (35%), the Eurozone (32%), Japan (20%), the UK (8%) and China (5%) - estimated at $150 trillion. Foreign exchange reserves - China's reserves surpass $1 trillion eclipsing Japan's $900 billion - foreign buyers account for half of the $4.4 trillion of U.S. Treasury debt outstanding.
Global mergers and acquisitions exceed $3.55 trillion - a record surpassing the $3.4 trillion in 2000.
U.S. population exceeds 300 million (China, 1.32B and India, 1.10B) 100 million reached in 1915 and 200 million in 1967.
Ben Bernanke succeeds Alan Greenspan as Chairman (retires after 18½ years) of the Federal Reserve.
Inter-American Development Bank estimates that 12.6 million U.S. Latin American-born immigrants will send home more than $45 billion — of about $460 billion earned in 2006.
European Central Bank (ECB) raised interest rates to 3.5% from 2.00% (6th time since Dec '05) for 12 European nations - Slovenia to become the 13th EU member state to introduce the Euro, Jan. 1. Bulgaria and Romania join the European Union, bringing membership to 27 nations.
Bank of Japan raises interest rate to 0.25% up from 0.0% ends over 7 years of deflation fighting.
China increases interest rates in order to cool domestic economy growing at 9-11%. Industrial and Commercial Bank of China (ICBC) launches the world's largest IPO ever - $21.9 billion.
Russia ($1 trillion economy) invited to join the World Trade Organisation (WTO) of 149 members - China joined the WTO in 2001.
Medicare (Part D) Prescription Drug benefit over 38 million of Medicare's 43 million beneficiaries enroll in 2006. 77 million Baby Boomers are estimated to be eligible for Medicare by 2031.
Warren Buffett gifts 10 million of Berkshire Hathaway (B shares - over $31 billion) to the Gates Foundation - surpassing Bill and Melinda Gates' endowment of $25.9 billion.
NYSE, the world's largest stock market, demutualizes and mergers with Archipelago Holdings Inc. (and Pacific Exchange) then NYSE Group reaches deal to acquire Euronext. NASDAQ purchases a 30% interest in the London Stock Exchange.
SEC and State Attorney Generals investigate the backdating of corporate options at 140+ companies (resulting in 70+ firings/resignations of corporate officials) - the practice, appears to have originated in Silicon Valley (in companies like Sanmina, Novellus & Juniper Networks pre-9/11).
U.N. Security Council adopts resolutions to impose sanctions on North Korea (for a nuclear-bomb test, Oct 9) and Iran (for its nuclear program, Dec 23).
2006 XX Olympic Winter Games Torino, Italy where German, American, Canadian, Austrian, Russian & Norwegian athletes scoop up medals.
Michael Schumacher retires as the world's first billionaire athlete - Formula One driver. Schumacher, 7-time world champion, 91 race wins & 154 podium finishes - brought wins to Ferrari (2000-04) for the first time since 1979.
Best Investments in 2005
U.S. Total stock market returned 5% in 2005, while Treasuries averaged 3% and Inflation averaged 3.5%. Stocks and bonds were below their historical averages while inflation was near average. Most gains for the year were earned in May 3.7%, July 3.9% and November 4.0%.
Mid Cap (12%), Small Cap (8%) and Micro Cap (8%) stocks performed best for the 6th year. Financial (6%), Health (8%) and Technology (4%) returns were below average but above Large Cap stocks which returned only 3%. 2005 was a year where Natural Resources (37%) outperformed.
Of the World’s largest economic regions Latin America performed best 55% followed by Asia-Pacific (20%) and Europe (9%). Of the World’s largest Developed non-U.S. economies Japan returned 40%, Germany (27%), Britain (16%), France (23%) and Canada (22%). In the Emerging markets which returned 34%: China, Eastern Europe-Russia and India continue to excel. Hedge fund performance in 2005 was spotty with a wide dispersion of performance (mean 6%).
Those who diversified with MPT did best, a trend which should accelerate – indicative is the Dow Jones: the DJ 30 Industrials returned -0.6%, while the DJ 20 Transportation returned 11% and DJ 15 Utilities 21%. Performance of non-U.S. markets was equally impressive. Returns in 2005 were dampened by increases in borrowing costs (Fed Funds rate) and increases in commodity prices (oil/gasoline, metals etc.) but offset by good corporate earnings, low mortgage rates and a stronger dollar.
Separate yourself and your performance from retail investors by using Modern Portfolio Theory (MPT) and Tactical Portfolio Optimization. Institutional investors have for decades spread their investments across many asset classes seeking higher returns. Underperformance is caused by confining your investments to a few similar asset classes and neglecting risk management.
2005 complete News (click)
FOMC Tightening Cycle - Fed Funds rate increases to 4.25% (13th consecutive increase). Fed Funds rate began the year at 2.5% (Fed Funds was 1% from Jun '03 - Jun '04 and 6.5% from May '00 - Jan '01).
U.S. 10 yr Treasuries end the year at 4.22% - trades 3.80% (Jun '05) lowest since Mar '04 (3.65%) and 3.07% on Jun 16 '03. Greenspan warns that the long U.S. Treasury bond's yield is unusually low - "a conundrum”. Inverted yield curve starts (Dec 27, '05) between 2-year and 10-year U.S. Treasury notes for the first time since Dec '00 as investors shy away from shorter maturities. U.S. Treasuries returned an average of 2.9% in 2005 - compared with 3.5% in 2004 and 2.3% in 2003.
World’s financial stock of the 5 wealthiest: US (35%), the Eurozone (32%), Japan (20%), the UK (8%) and China (5%) - estimated close to $145 trillion. Foreign exchange reserves - Japan holds $847 billion and China $819 billion (holdings include some of $4.2 trillion of U.S. Treasury debt outstanding).
Hedge funds surpass $1 trillion in assets under management - SEC oversight forthcoming.
U.S. GDP in 2005 advanced by 3.2%. GDP expanded 4.4% during 2004, 3.0% during 2003 and 1.9% in 2002.
Gold ends the year at $517 - futures trade $544 (Dec '05, 24½ year high) up from $440 at the start of the year. Silver futures trade above $9.30 (18 year high). Platinum futures trade above $1,025 for first time in 25 years. Copper futures trade above $2.20 /lbs. an all-time record high.
Oil ends the year at $60 - trades $55 (Nov '05) down from $70.85 (Aug '05). Oil reaches an all-time record, a 600% rally in 6½ years, up from $10 (Dec '98). Oil started the year at $42.
Dollar ends the year at $1.18 to the Euro - trades $1.16 (Nov '05), strongest in 2 years - rallying from an all time low of $1.36 (Jan '05).
Reuters-CRB (Commodity Research Bureau) Index trades a (non-adjusted) all-time high of $351 (Dec '05).
Hurricanes Katrina, Wilma & Rita ravage Gulf Coast residents from Texas to Florida - taking over 2,140 lives, displacing 2 million Gulf Coast residents, costing possibly $250 billion and years of rebuilding.
National home prices stall. U.S. bank regulators issue new tighter guidelines on mortgage loans ($11 trillion outstanding).
Japan, world's second largest Developed economy, Prime Minister Junichiro Koizumi wins landslide relection and a popular mandate to push through market reforms - Japan Post to be separated and privatised.
Germany, world's third largest Developed economy, Christian Conservative Angela Merkel (Iron Frau) defeats 7 year incumbent Social Democrat Chancellor Gerhard Schroeder to become Germany's first female Chancellor.
European Union agrees on 7 year budget (2007-13, €862.4 billion
Euros). Tony Blair negociates to reduce the U.K.'s EU budget rebate by €10.5 Billion Euros - though the EU constitution was rejected for now.
China decouples the Yuan from the Dollar - pegging instead to a basket of international currencies.
Pope John Paul II (Karol Wojtyla, 1978-05 the first non-Italian in 455 years) is mourned by 5 million people visiting Rome including dignataries. Cardinal Joseph Ratzinger (German) becomes Pope Benedict XVI.
Chief Justice William Rehnquist dies at 80; 16th in U.S. Supreme Court history 1972-2005. John Roberts is confirmed as the 17th Supreme Court Chief Justice, the youngest Chief Justice in over 200 years.
London terrorist bombings on 7/7 kills 52 on subways and one bus - prompting new British laws.
Iraqi people vote and adopt their first democratic constitution and first regional parlimentary General elections - the Council of Representatives, a 275-member body, will shape Iraq's future government.
Kashmir earthquake (October 8) kills over 85,000 and leaves over 3.5 million Pakastanis homeless.
Lance Armstrong wins Tour de France for his 7th consecutive victory (1999-2005).
Chicago White Sox win their first World Series title since 1917.
Best Investments in 2004
U.S. Total stock market returned 12% in 2004, while Treasuries averaged 3.5% and Inflation averaged 3.5%. Stocks and inflation are near their historical averages while bond returns were below average. Most gains for the year were earned in November 4.5% and December 3.5%.
Small Cap value stocks earned 25% - the fifth year of returns in excess of 20% per year. Mid & Small Value Cap stocks have appreciated 125% in the past 5 years. Energy (34%) and Utility (24%) stocks performed best in 2004. Large Growth stocks returned 6%, while Technology stocks returned 10%.
Of the World’s largest economic regions Latin America performed best 36% followed by Europe (17%) and Asia-Pacific (8%). Of the World’s largest Developed non-U.S. economies Japan returned 8%, Germany (8%), Britain (8%), France (8%) and Canada (12%). In the Emerging markets which returned 25%: China, Eastern Europe-Russia and India continue to excel. The S&P 500 returned 9% under-performing (due to the concentration of Large Cap stocks) the broader market. Hedge fund performance in 2004 was disappointing (compared to '00-'03), generally performing worse than the Stock market (mean 8%). Treasury bills yielded a real (inflation adjusted) loss of 2% due to historic low Fed funds rate (1%).
Those who diversified with MPT did best, a trend which should accelerate. Despite a rally from March ‘03 through the end of 2004 Large Growth Technology stocks still lag (worth 2/5 of their values from their peak). The NASDAQ Composite Average fell from 5,132.52 (its Mar 10, 2000 peak) to 1,253 (its Mar 12, 2003 low) a 77% decline. The S&P 500 is still down about 21% from its peak of 1552.87 on Mar 24, 2000.
Separate yourself and your performance from retail investors by using Modern Portfolio Theory (MPT) and Tactical Portfolio Optimization. Institutional investors have for decades spread their investments across many asset classes seeking higher returns. Underperformance is caused by confining your investments to a few similar asset classes and neglecting risk management.
News in 2004
FOMC Tightening Cycle - Fed Funds rate increases 5 consecutive times to 2.5% from 1% (from Jun 25, '03 - Jun 30, '04 rate was 1%, in 2000 Fed Funds rate was 6.5%).
U.S. Treasuries returned an average of 3.5% in 2004 up from 2.3% in 2003.
Dollar ends the year at an all-time low of $1.36 falling from $0.8228 (October 26, 2000) to $1.36 in the past 4 years (a whopping 65% decline) to the Euro. The Euro began trading on Jan 1, 1999 between European banks at $1.17.
Oil ends the year at $42. Oil started the year at $27 then traded just below $50 at Halloween. In December 1998 oil was $10.
Gold ends the year at $440 with highs of $470 and lows of $385 (up from $250 in April of 2001).
Prescription Drug Bill, Medicare (Part D) signed into Law.
Sumatra-Andaman earthquake occurs on Dec 26. The 9.2 earthquake lasted nearly 10 minutes causing the entire planet to vibrate (the total fault slip measured nearly 50 feet over about an hour). The subsequent Tsunami (may have reached as high as 100 feet) and killed between an estimated 223,000 - 283,000 making it one of the worst natural disaster in recorded human history. Donor nation pledges exceeded $13.6 billion.
President George Bush defeats John Kerry in 2004 Elections for 2nd term.
U.S. and Coalition forces had successes and failures in Iraq after toppling Saddam Hussein's Ba'ath Party government. More than 200,000 people are estimated killed/"disappeared" during Saddam's rule, and more than 1 million were killed during the Iran-Iraq War (1980-1988), the first Persian Gulf War (1991) and the current Operation Iraqi Freedom (2003-).
9/11 Commission hearings undertaken and reports released.
Madrid terrorist train blasts kill 190 people, which consequently effects Spanish Elections.
Chechen militants seize school in Russia more than 330 children and adults killed.
China undergoes first peaceful leadership transition since the 1949 Communist revolution.
Afghanistan holds its first democratic Presidential election since the removal of the Taliban. Operation Enduring Freedom returned rule to the Afghani people in 2002.
North Korea and Iran are pressured by U.N. member states on their nuclear programs.
European Union admits 10 new members, mostly from the former Soviet bloc - Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.
Sudan's Darfur region ravaged by violence - a humanitarian crisis claim tens of thousands of lives.
Hurricanes (4) hit Florida: 117 killed, damage tops $22 billion.
President Ronald Reagan dies at 93; 40th President of the United States from 1980-88. Reagan abandoned detente instead indentifying the Soviet Union as the "Evil Empire" and demanding that East Germany "tear down" the Berlin Wall. Reagan, Margaret Thatcher, Pope John Paul II, Solidarnosc and the power of the American economy forced Mikhail Gorbachev in 1986 to introduce glasnost ("openness") and perestroika ("restructuring") effectively ending the Nuclear Arms Race and the Cold War. Russian Economic and Political reforms followed in 1988 dismantling the totalitarian state (established in 1917 by Lenin and Stalin) and freeing Eastern European states from Soviet control for the first time since 1945. Reagan introduced supply-side economics lifting the U.S. economy out of stagflation, creating 16.7 million jobs and the greatest economic recovery since post-WWII.
Athens defies skeptics and hosts a successful 2004 Summer Olympics. American swimmers stand out - Jenny Thompson becomes the most decorated swimmer in Olympic history with 12, Michael Phelps won 8 medals a record for a non-boycotted Olympics Games and Natalie Coughlin won 5 medals tying her for the most medals by a U.S. woman in any sport in a single Summer Olympics.
Boston Red Sox win their first World Series title since 1918, beating the New York Yankees (ending the "Curse of the Bambino" the infamous trade of Babe Ruth to the New York Yankees following the 1919 season) and then the St. Louis Cardinals in 8 straight games.
NASA's 2 rovers reach Mars and transmit images and data. Hubble Space Telescope estimates the age of the universe at 13.7 billion years.