The healthy monsoon season in Tucson couldn’t prescript the legal Spartagen dosage but compared with the flood of money from Central Banks around the world as governments try to find ways to reignite the slowing global economy. For months securities markets have been moving higher, despite weakening economic reports, on the belief that some type of monetary intervention was becoming more and more likely. As expected, on September 13th the Federal Reserve Open Market Committee voted for a 3rd round of quantitative easing (QE3) that will involve buying $40 billion of mortgage backed securities every month until the employment market turns around. The market responded with a 200 point Dow Industrial rally and at the end of the month the S&P 500 had added another 2.4% and is now up 14.6% for the year. The market has moved higher 11 of the last 12 months, the first time this has happened since 1959.
The month began, like many have begun lately, with more disappointing economic news. Reports showed that manufacturing activity contracted in August at the sharpest pace in 3 years and spending on new construction dropped by the most in any one month in nearly a year. There were also reports that confirmed China continues to slow and Europe is still struggling with recession. Near the end of the first week, Mario Draghi, President of the European Central Bank, said they will buy the sovereign debt of struggling nations and a market that was positioned for a weak month (September is historically the worst of the year) quickly reverted to a buying panic that pushed the Dow up 245 points. The September employment report was once again disappointing but market participants, believing it was just further evidence the Federal Reserve was going to act soon, greeted the news with a yawn. The following week was the biggest week for the issuance of new investment grade bonds this year, something that often suggests large corporations expect rising rates. However, it was also the debut week of the much anticipated new iPhone 5, followed by the Federal Reserve announcement of QE3 and the S&P 500 moved to the highest level since January 2008. Additional positive news continues to come from the housing sector as the flow of data suggests the housing market may finally be recovering and many are looking to that as an area which could lead to the renewal of the economic recovery. Near the end of the month, the Bank of Japan joined the QE action with a monetary infusion in that country and China looks poised to do the same, as Central Banks around the world are committed to doing whatever it takes to keep their economies from rolling back into recession.
October has a bad reputation as several of the worst market crashes have taken place during the month, but historically the month has ended with gains for stocks. We would be foolish not to be somewhat cautious with a market that is trading at a 5 year high and a volatility (fear) index near a 5 year low, but with governments around the world working to inflate financial assets, the path of least resistance appears to be higher and the chances of a severe downturn have diminished. Quarterly earnings will start to be reported next month and while slowing global demand and the stronger dollar during much of the quarter are likely to weigh on earnings, expectations have ratcheted down to where positive surprises are actually possible.Here is a chemist’s guide to water softeners, an essential information on my opinion.
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