Month: June 2012

Brent crude at $100 ‘favorable,’ says Iraq’s Shahristani

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Brent crude oil price at USD 100 a barrel would be “favorable” for both producers and consumers, Iraq`s Deputy Prime Minister for Energy said Friday, reinforcing a price target set by top OPEC producer Saudi Arabia earlier this year.

“Hundred-dollar Brent, I think will allow the world economy to grow and also encourage other producers to produce at a reasonable profit,” Hussain al-Shahristani told CNBC in an exclusive interview. “USD 100 a barrel is favorable not only for Iraq, but Iraq can produce at much lower cost.”

Shahristani said crude oil prices – on track for their biggest quarterly decline since the 2008 financial crisis – may be close to finding a floor. “USD 85 to USD 90 for Brent…I think that`s about the bottom.”

But if Iran acted on threats to close the strategically vital Strait of Hormuz, a transit route for more than a third of the world`s seaborne oil exports, benchmark Brent crude may surpass USD 150 a barrel, possibly “much higher than that,” he said.

“The situation would be extremely serious for the world oil supply and for the world economy. I cannot predict where the prices are going to be in that case but I`m sure we`ll see prices unheard of,” he added.

Shahristani said he couldn`t confirm reports saying Saudi Arabia has reopened an old oil pipeline – built by Iraq to bypass Gulf shipping lanes – to prepare for a possible shutdown of the Strait of Hormuz.

The Iraqi Pipeline in Saudi Arabia (IPSA), laid across the kingdom in the
1980s after oil tankers were attacked in the Gulf by both sides during the
Iran-Iraq war, has not carried Iraqi crude since Saddam Hussein invaded Kuwait in 1990, according to a Reuters report.

“That`s a Saudi‬ decision,” Shahristani told CNBC. “However, I would like to point out that the pipeline was built solely for the purpose of exporting Iraqi crude to the Red Sea and we have asked Saudi Arabia to allow Iraq to reopen and use that pipeline again for the purpose that it was originally built for.”

He added that he could “see the necessity” of opening the pipeline which would transport crude west across the Kingdom to terminals in the Red Sea if Iran‬ blockades the Strait.

Baghdad has requested Saudi Arabia “more than once” to reopen the Iraqi leg of IPSA pipeline but Riyadh has yet to respond. Global oil markets are in surplus, Shahristani said, adding that the Organization of Petroleum Exporting Countries (OPEC) may consider an output cut later this year if supplies continued to grow.

OPEC`s last meeting in Vienna earlier this month generated “heated discussions,” Shahristani said. Ahead of the meeting some OPEC members suggested Saudi Arabia had been over-producing oil, risking a collapse in prices.

-By CNBC`s Sri Jegarajah

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Investors should look at Mexico, Brazil: Bill Gross

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Bill Gross, the world’s biggest bond fund manager at Pimco, said the US is the least bad choice in a poor global investment environment, but this could change if Washington doesn’t get control of the nation’s fiscal situation.

The Pimco co-founder said investors should also avoid the euro zone as a whole, but he suggested investors might want look at Mexico and Brazil. “They have much more attractive balance sheets, higher growth rates, and more attractive and higher interest rates, as well,” he said.

Gross called “America is the cleanest dirty shirt in terms of financial markets” on CNBC’s “Street Signs” Thursday.

“It’s where money is moving towards out of Euro land and out of all the risky peripheral countries,” he said.

Gross highlighted relatively low debt, reserve currency status, and strong property rights as reasons investors continue to favor the US But he cautioned that “it’s not ultimately and inevitably secure in this position.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is gold on the edge of a violent downturn?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Gold is on the brink of a “violent downturn” and could even fall as low as USD 700 an ounce as the risk of deflation in developed economies grows and technical pointers turn bearish, one expert tells CNBC.

“Technical levels show us when the trouble is coming. Gold struggled at USD 1,700 and then at USD 1,600. If it breaks through the next key level of USD 1,500, which could be approaching soon, investors would start panicking and selling hard,” Yoni Jacobs, Chief Investment Strategist at Chart Prophet Capital said on Thursday.

Gold, which has fallen below USD 1,600 eight times in the past 10 months, is currently trading below the key 200-day and 300-day moving average of USD 1,650 and USD 1,670, respectively. The 300-day moving average has supported the bull market in gold since 2001, however this is no longer the case, he said.

“It appears that the market has decided on gold`s fate. And it`s not looking pretty. It looks like gold is about to see prices collapse and is on its way to USD 700,” Jacobs added.

The two main triggers for a large selloff in the precious metal could be a further slowdown in global economic growth – which would likely result in deflation – or inaction by leading central banks such as the Federal Reserve or the European Central Bank. “Gold is a commodity, just like everything else, and if the world economy goes into a recession or if we see slowdown, gold is not safe from a commodities slowdown,” Jacobs said.

“Just like you see oil falling from USD 115 to USD 80 – we will see the same thing with gold and it`s already underway.”

He added that the absence of further “money printing” by the Fed, which has supported gold prices in recent years, could spark selling in gold.

He thinks the Fed – which has extended “Operation Twist” that involves selling medium-term bonds and using the proceeds to buy longer-term ones – may hold off a third round of quantitative easing due to mounting political opposition from Republican lawmakers.

“Most investors and financial institutions are heavily relying on governments and central banks to support asset prices by money-printing, but the reality is finally sinking in that there is not much to be done – it might be too risky, too inefficient, and too late,” Jacobs said. (Related: Largest Gold Mines)

Downside Pressure Just Short-Term?

Warren Gilman, Chairman and CEO of CEF Holdings in Hong Kong, agrees that gold will come under pressure in the short-term, driven by profit-taking.

“If one can take a profit in these uncertain times lock in some cash, then one is going to do that. It`s also a source of some liquidity, so I do believe that the bias on the (gold) price is on the downside in the near-term,” he said.

However, he maintains a positive outlook for the precious metal in the long-run. “In this environment where you have negative real interest rates, and you have central banks acquiring gold at historic levels over the last few years, the gold price will definitely rise. I`m a long term believer in gold; I`m not taking a short position.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Emerging market stocks to outperform in 2012: BlackRock

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stocks in emerging economies such as China and Indonesia have underperformed this year in comparison to some developed markets, but the world’s largest asset manager, BlackRock, says they are set to take off in the second half amid higher volatility in the United States and Europe.

The Shanghai Composite Index has gained 0.8%, while the Jakarta Composite Index has added 2.95% this year, compared to a 5.9% increase in the SandP 500 and a 5.61% gain in Germany’s DAX.

But BlackRock is still sticking to its forecast that emerging market stocks will outperform their Western peers in 2012. Less volatility, stronger economic growth, slowing inflation and cheaper valuations are going to push emerging market equities higher, BlackRock said in a report published Wednesday.

“Most of the larger emerging markets have witnessed a significant deceleration in inflation over the past six months,” Russ Koesterich, Managing Director of BlackRock, wrote in the report. “As inflation falls, multiples in emerging markets typically rise at a faster rate than for a similar drop in developed markets.”

As of late May, the MSCI Emerging Markets Index was trading at about 11 times forward 2012 earnings, which is about 20% less than that of the MSCI World Index, according to the report. Historically, whenever emerging markets trade at a 20% or more discount, they tend to outperform over a one-year horizon, the report added.

BlackRock recommends buying high-dividend stocks and bonds in Brazil, China, Indonesia and Taiwan.

Destination Wealth Management, a California-based advisory and investment firm, says investors should buy some emerging market equities to take advantage of the burgeoning middle class, as the debt problems in the U.S. and Europe will crimp growth there.

“The Shanghai Index has been destroyed relative to 2007, and that’s why we just bought China for the first time in quite some time,” Michael Yoshikami, CEO of Destination, told CNBC Asia’s “Squawk Box.” “Maybe we are not going in at the lowest, but we are going in at a fairly low point right now.”

Pu Yonghao, UBS Wealth Management’s Chief Investment Officer for the Asia Pacific region, expects the US and Europe to remain volatile even if they will eke out some growth. He favors Asian stocks because of pro-growth policies that many governments have started to adopt and low valuations.

“Stock markets are trading at a relative discount, so it makes sense that you look at the opportunities to pick up some companies with good cash flow, good dividend yield,” Pu said.

– By CNBC’s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Miserable millionaires? Could be a good thing

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The fact that millionaires are stuck in a funk might seem like a bad sign for markets and especially for the luxury economy.

A new survey from Spectrem Group shows that millionaire investor sentiment is at a five-month low. It’s crashed from a high of 10 (very bullish) in March to just one in June, meaning the rich are basically neutral and headed toward bearish.

This follows a steady stream of indicators that are flashing red for the rich. Their spending is slowing. They’re not putting money into stocks. And their top concerns are the political environment, the national debt and other issues that aren’t likely to be solved anytime soon.

All of this would seem to be a bad omen for the economy. After all, the one percent owns about half of the individually held stocks in the US, and the top five percent of earners accounts for up to a third of consumer outlays. If they’re cranky, the United States is cranky.

But there is a possible bright side to the misery of millionaires – and I’m not talking schadenfreude. Maybe a bearish signal from millionaires could mark a market bottom.

If we take a look at the SandP alongside the millionaire investor index we see two things. First, there is a pretty good correlation between the mood of millionaires and the market. Millionaire optimism goes up when markets go up, and it goes down when markets go down.

The second lesson is that lows in millionaire sentiment are often followed by market rallies. The last time we saw maximum bear sentiment from the millionaires was October of 2011. Their pessimism was followed by the huge rally in the SandP, which continued into the early spring.

The previous fall was in the March of 2011, which also preceded a mini rally in the SandP.

Of course, the predictive effects of the millionaire sentiment don’t always work. Millionaires turned bearish in the spring of 2011, and the market continued to fall even further throughout the summer – along with their sentiment.

Still, the last time millionaires were bearish, the markets followed with a strong rally.

Do you think millionaires are a leading indicator, negative indicator or non-indicator for financial markets?

-By CNBC’s Robert Frank
Follow Robert Frank on Twitter: @robtfrank

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why Mumbai’s real estate market is still red hot

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A 28th floor apartment in south Mumbai, facing the Arabian Sea, sold for a record-setting Rs 39 crore (USD 6.8 million) this month, underscoring the dichotomy in India’s property market where prices remain stubbornly high, even as the economy falters and the currency nosedives.

Mumbai, India’s financial hub and home to Bollywood — one of the largest movie industries in the world — is the most expensive city in the country and real estate prices in the city compete with other Asian centers such as Singapore and Hong Kong.

Over the past year Asia’s third-largest economy has grappled with corruption scandals, policy flip fops and poor fiscal performance, but property prices in its largest metro have stayed immune, clinging to pre-Lehman highs.

Anuj Puri, Country Head (India) at real estate services firm Jones Lang LaSalle, says prices will remain at these levels and he doesn’t foresee a decline any time soon.

According to industry estimates, property prices in Mumbai rose about 17% in the first quarter of this year. A combination of a lack of supply, regulatory hurdles that have come in the way of new launches and an inflexible lease market have all contributed to the city’s sky-high prices.

“Apartments are not easily available for rent in Mumbai to individuals, as owners prefer to lease only to corporates, therefore people look to buy a house,” says Rajesh Jogani, a property investor in Mumbai.

But high mortgage rates, which are between 10% and 12%, have created a cash crunch for buyers resulting in a dip in volumes. According to industry estimates, sales are down by more than 40% over the past one year.

“Demand has slowed, but supply has slowed even faster,” says Puri, adding that the approval of new projects over the past 14 months has been very slow as the government was in the middle of changing regulations. Even though the new rules are now in place it will take at least another four years before fresh supply can hit the ground, he says.

This tightness in supply has given existing property owners greater bargaining power. “If you have holding power and can wait it out for a few months, you are sure to get a good price,” says Jogani, who got 20% more than his asking price for his apartment in central Mumbai after waiting it out for six to eight months.

“If earlier there were 10 buyers for one apartment in Mumbai, now there are 5, but they are still there,” says Puri.

Bharat Shah, whose company, the Siddharth Group, has been building homes in Mumbai and its suburbs since 1990, says the high cost of acquiring land, owing in part to the fact that Mumbai is an island, plus the increasing cost of construction prevents builders from cutting prices.

“We can’t afford to lower prices,” he says. “People have waited to buy and realized prices have not come down, so we expect volumes to pick up in the coming months.”

According to Ramesh Jogani, the CEO of real estate private equity firm India Reit, the undertone is still bullish because the market is largely made up of Indians looking to own a home. Regulations in India restrict ownership by foreign individuals.

“The buyers are more genuine homeowners and less speculators,” says Jogani, whose firm has raised Rs 3,100 crore (USD 540 million) to invest in the Indian property market since it started in 2006.

“We recently launched a fund that was looking to invest in redeveloping old Mumbai buildings and slum areas and we raised Rs 250 crore (USD 43 million) in just two months,” Jogani said, highlighting investor confidence in Mumbai’s property sector.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China equity bulls still wait for their moment in the sun

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Low valuations, market reforms and the prospect of monetary easing were all supposed to bring about a long-awaited turnaround for China’s languishing stock market this year, but halfway into 2011 and Chinese stocks have failed to live up to their promise.

Instead, the Shanghai Composite Index is on track to post a disappointing performance for the third year running, when compared to Hong Kong’s Hang Seng Index or the SandP 500.

So far this year, the Shanghai Composite is up 1.5% compared to a gain of 4% for the Hang Seng Index and a 5% gain for the SandP 500 Index.

Stocks in Shanghai have been mired in a slump after declining 22% in 2011, when it was one of the worst performing markets in Asia, as a series of credit-tightening measures by the Chinese government hurt investor sentiment.

But analysts who’ve been predicting a major breakout for the market are still sticking to their views, pinning their hopes on a reversal of monetary tightening as well as financial-sector reforms to stimulate the economy.

Chris Tang of Marco Polo Pure Asset Management told CNBC her firm was sticking to its guns and forecasting a huge rally in the coming years.

“We will see a bull run over the next 24 months,” Tang said. “This year there will be a rerating story…We will see the new government pump up the economy very fast, and what’s very encouraging is that capital account opening and financial reforms have been much faster than we expected.”

Marco Polo expects China’s A shares to gain between 200% and 500% over the next few years, to hit between 7,500 and 12,500, a forecast the firm made in August last year. The firm’s views are at the most bullish end of the spectrum.

What’s going to turn things around, analysts believe, will be the China Securities Regulatory Commission’s decision in May to allow domestic brokerages, which now get most of their money from trading stocks and underwriting new securities, to expand into futures and derivatives, asset management, private banking and private equity.

China is also making plans to let Chinese insurers manage offshore yuan funds, a business now limited to fund houses and brokerages, giving a potential boost to the financial sector.

Like Tong, Cedric Ma, Convoy Asset Management’s Senior Investment Strategist in Hong Kong, is also betting on these reforms to boost Chinese equities in the second half of the year.

“I remain positive about Chinese stock as I think the latest interest rate cut decision, falling inflation, and talk from government officials on, e.g. refocusing on infrastructure projects have indicated the monetary policy is no longer restrictive,” he told CNBC.

Ma said even though second-quarter economic data, such as gross domestic product (GDP) will continue to get weaker and there will be no large economic stimulus, the Chinese economy should begin rebounding in the third quarter.

According to him, the Shanghai Composite could hit 2,373 this year, representing an upside of about 7% from current levels, bringing the year’s gains to about 10%.

On the other hand, Goldman Sachs, which forecast that Shanghai stocks would increase 30% this year, has adjusted its expectations for the market.

Helen Zhu, Chief China Strategist at the investment bank, said in a report this month that investors had already priced in the government’s expansionary measures and Shanghai stocks no longer looked that attractive when compared to stocks in Hong Kong.

“Consensus now expects more China loosening than before, post the recent rate cut and higher than expected (bank) lending in May,” she wrote.

Instead, from here on, the main driver of Chinese stocks will be external factors, she said.

– By CNBC’s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The American dream is now a myth: Joseph Stiglitz

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Once seen as the land of opportunity, the US today is grappling with rising inequality and a political system that benefits the rich at the expense of others, resulting in lower growth and risking the death of the American dream, according to Nobel prize-winning economist Joseph Stiglitz.

“The US worked hard to create the American dream of opportunity. But today, that dream is a myth,” Stiglitz wrote in an opinion piece in the Financial Times Tuesday.

Stiglitz said US inequality is at the highest point in nearly a century and the gap between those with the median income and those at the top is growing.

“The US used to think of itself as a middle-class country – but this is no longer true,” he said. “Today, a child`s life chances are more dependent on the income of his or her parents than in Europe, or any other of the advanced industrial countries for which there are data.”

• Slideshow: America`s Biggest Wealth Gaps

According to a Census Bureau report, US household income inequality has grown by 18% since 1967, although this trend has slowed in recent years. Wealth disparity is also proving to be a hot topic during the 2012 election year, with Democrats arguing that Republican candidate Mitt Romney’s wealth makes him out of touch with ordinary Americans.

According to Stiglitz, regulations, particularly those governing the financial sector are contributing to the disparities.

“Financial regulations allow predatory lending and abusive credit-card practices that transfer money from the bottom to the top. So do bankruptcy laws that provide priority for derivatives,” he said.

Stiglitz argues that Americans were increasingly being made to think that higher income inequality was a byproduct of faster growth, but he says that`s a false choice. The US economy grew faster in the decades after the Second World War, when inequalities were lower, than it did after 1980, he said.

“Textbooks teach us that we can have a more egalitarian society only if we give up growth or efficiency,” he said. “However, closer analysis shows that we are paying a high price for inequality: it contributes to social, economic and political instability, and to lower growth.”

Western countries with the healthiest economies, such as those in Scandinavia, have the highest degree of equality, Stiglitz noted.

• Slideshow: America’s 10 Richest Counties

To prevent the worsening disparities, Stiglitz argues that the US should stop cutting public education and other programs that enhance opportunities for the middle class and the poor.

“President Barack Obama`s support for these investments, as well as the “Buffett rule” that asks those at the top to pay at least as much in tax as a share of their income as those who are less fortunate, are moves in the right direction,” he said.

He criticized Republican proposals to extend the Bush-era tax cuts on capital gains. But a number of economists as well as Democrats have come out in recent months in support of extending the tax cuts.

“The country will have to make a choice: if it continues as it has in recent decades, the lack of opportunity will mean a more divided society, marked by lower growth and higher social, political and economic instability,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bank bailouts are here to stay ‘forever’: Economist

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Government bailouts of big banks are here to stay and are bad for economies because they channel capital to uncompetitive industries and sustain high levels of debt, according to a professor of economics and capitalism.

“Economies where the banks are really influenced by their governments just tend to have worse futures,”  Garett Jones, Senior Scholar of George Mason University’s Mercatus Center, told CNBC Asia’s “Squawk Box” on Wednesday.

“We (economists) always treated bank bailouts as an emergency ripcord but it’s turned out to be just a constant diet for the rich countries. And I think that’s something that’s going to stick with us for a long time. Bailouts, especially bank bailouts, are forever.”

Bailouts along the lines of the US government’s aid to the big US banks in 2008 and 2009 create high levels of debt and permit industries to make unwise choices because they know they can rely on the state to get them out of immediate trouble, Jones added.

“The sectors that have failed are those that have implicit or explicit government backing, so capitalism makes big mistakes but to make the whoppers, it helps to have a government guarantee,” he said.

Spain on Monday became the latest nation to ask for aid from its European Union partners to prop up its banks, as Moody’s Investors Service downgraded the ratings of 28 of 33 rated Spanish banks on the same day. This follows a cut to Spain’s sovereign rating to just above junk status earlier this month, pushing Spain’s country risk, as measured by the spread between German and Spanish benchmark bonds, to around 518 basis points.

Cyprus also sought emergency funding from Europe, the fifth economy in the region to do so, and may need a bailout of up to 10 billion euros (USD 12.5 billion), over half the size of its economy.

This constant bailout only serves to keep debt high and prolong weakness in economies and companies, Jones said.

“The levels of debt we saw, usually government-backed debt, whether officially or unofficially, all this debt is a big problem,” he said. “(Federal Reserve Chairman) Ben Bernanke’s research showed that high levels of debt can really cripple an economy and we have seen that over the last 4 years.”

Reforms are what are needed to get the world away from a cycle of bailouts, he said, proposing that banks convert their “vast amounts of long-term debt” into equity.

Investors need to take so-called ‘haircuts’ in their holdings, but political inertia is in the way.

“The rich-country bureaucrats have tried to come up with some kind of middle ground, what I would call speed bankruptcy , where you can tell the bondholders over the course of a weekend, hey guys, you are going to get 80 cents on the dollar, you’re going to get 60 cents on the dollar,” Jones added.

“But legally that’s been difficult and politically, politicians have been reluctant to push the button on this. The day of speed bankruptcy is always 5 to 10 years down the future,” he said.

– By CNBC’s Jean Chua.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

When investors fear the worst: What it really means

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Consumer nervousness over their stock portfolios is reaching an apex, which actually could mean good news for the market in the long run.

The most recent Conference Board consumer confidence survey, delivered Tuesday morning, contained an interesting nugget about worry over the state of equities.

The report found that the percentage of those who believe stock prices are going to fall shot up from 32.4% to 42.6%.

The 10.2 percentage point surge represents something of a landmark.

Looking at data back to 1987, there have been only seven occasions where the rise in stock market fortunes has eclipsed 10 percentage points in a month.

On six of those occasions, the Standard & Poor’s 500 has gained after six months, with the average return at 10.2%, according to research from Bespoke Investment Group.

Add the Conference Board survey, then, to the list of reliable contrarian market signals.

“I would like to see more negative sentiment. Then the market goes up,” says Nadav Baum, executive vice president at BPU Investment Management in Pittsburgh. “We’re stuck in a trading range…You need to get that pessimism on the retail retail side to get the market to break out of the range.”

On five of the seven times, the index has gained after three months with the average at 5.1%, though the one-month return has been a loss of 0.3%, with losses on four of the occasions, Bespoke found.

That latter figure – and to some extent the long-range effects of a sharp downturn in sentiment – jibes with the feeling of some market professionals who think investor worries are likely to escalate yet.

“There’s a lot of bad news out there to digest,” says Brian Gendreau, market strategist at Cetera Financial. “There’s potential for sentiment to get worse before it gets better.”

Other sentiment gauges reflect the feelings in the Conference Board survey.

Market bears outnumber bulls 36% to 33%, according to the latest American Association of Individual Investors poll, which found both levels above historical norms.

The Investors Intelligence Survey, which surveys newsletter authors, was the outlier, finding bulls in charge by a 37% to 26% margin last week.

But the most important gauge of all – where investors are putting their money – is strongly on the side of those who don’t believe in stocks.

Mutual funds focused on US stocks saw another USD 620 million of outflows last week, according to the Investment Company Institute, which said bond funds gained a whopping USD 3.6 billion.

In the Conference Board survey, investors expressed more jitters about their investments than they did even about their jobs, despite the 8.2% national unemployment rate and lackluster monthly payrolls growth.

The current conditions index is considered a reliable proxy for feelings about job security, and that portion actually rose from to a 46.6 reading from a 44.9.

That means, according to Amna Asaf at Capital Economics, that “households were more concerned about their equity portfolios than their job security.”

“Looking ahead, the fall in gasoline prices should provide a short-term boost to real consumption,” Asaf said. “But confidence could easily fall further if equity prices continue to tumble.”

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow