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Weekly Wrap-UpMarch 27-31, 2000 |
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Weekly Wrap-UpMarch 27-31, 2000 |
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The North American bond markets experienced a week of volatility, punctuated by a flight-to-quality. Corporate, agency, mortgage-backed and asset-backed securities were all hurt by institutional investors selling. News that the Tiger Funds were unwinding positions also put a bid in the government markets. Yields in both Canada and the US are at the lowest levels since May of 1999.
The long anticipated OPEC meeting wound up early in the week. The OPEC ministers finally came to an agreement after Libya and Iran had been hold outs. Libya remained a hold out after the other countries had agreed to output increases. The Libyan Minister would have had a hard time selling any deal that looked like it had been brokered by the US at home. In the end, the OPEC nations agreed to a 6.2% increase amounting to approximately 1.7mmb/d. Many experts believe that this increase in output will come too late for the North American driving season, leaving rates at the pump virtually unchanged.
The French government indicated that it may be in the market to sell gold. The French are the ninth largest holders of gold reserves in the world. With the announcement that the sales of the yellow metal would be required to fund government pension fund liabilities the gold market took a hit. At a time when demand from India and other gold jewelry manufacturing countries was strengthening, this extra supply was not what the market needed.
As mentioned above, Julian Robertson - one of the Deans of value investing - has called it quits. His long standing market outperformance since the 1980's as manager of the Tiger group of funds has come to an end. In a statement released to unit holders Mr. Robertson said he no longer understood the markets and "the current technology, internet and telecommunications craze, fueled by performance desires of investors, money managers and even financial buyers is unwittingly creating a Ponzi pyramid destined to collapse". His market wisdom will be missed.
Economic data released this week continued to show that the economies of both Canada and the US remain strong, and that the Fed is not done yet. In Canada, industrial prices rose 0.9% month-over-month (m/m) in February, up 5.9% year-over-year (y/y); raw materials prices rose 3.2% m/m and 37.1% y/y. In the US, new home sales dropped 0.5% m/m, while prices rose 4.0% m/m; personal income rose 0.4%; personal spending rose 1.0%; the savings rate fell to 0.8% - the lowest level recorded since this statistic was initiated in 1959; revised fourth quarter GDP rose to 7.3% from 6.9%. The economy sure is strong.
The bond markets were volatile this week as selling from the Tiger funds, and a flight-to-quality trade developed due to the sell-off on the Nasdaq. The US Treasury issued $US 12 billion in 2 year notes this week. The auction triggered a net redemption of $US 15 billion in government debt securities. Spreads widened on the corporate, agency, mortgage and asset-backed markets as investors sold these for the relative safety of government bonds. Due to part of the Tiger funds unwind, the Canadian bond market underperformed its US cousin over the week.
The government of Canada 30 year long bond finished the week 1 basis point stronger at 5.74%. The US Treasury 30 year long bond shed 15 basis points, to close the week yielding 5.83%. The Canada/US 30 year spread moved to -9 basis points. (A basis point is 1/100th of a percent.)
The North American equity markets sold off this week as fears of over valued securities, the winding down of the Tiger funds, asset shifts by Abbey Joseph Cohen and Paine Webber all weighed heavy on the markets. Techs really took it on the chin as Ms Cohen recommended only a market weight in the sector for the first time in 10 years. The Goldman Sachs strategist indicated that the tech sector was fairly valued and should not be an overweighted portion of the portfolio. Ms Cohen also increased the cash weight of her model portfolio at the expense of equities.
Microsoft continues to languish as a settlement of the antitrust suit with the US Department of Justice does not look probable. Techs were hit as the Cohen comments hit the market. The usual suspects were all down on the week - Nortel, BCE, JDS Uniphase, Cisico, Intel, Microsoft, etc., etc., etc.
The TSE was hit hard, dropping 590.29 points, or 5.87%, to close down at 9462.39. The TSE is still up 12.46% year-to-date. The DJIA finished 1.72% lower, down 190.88 points, at 10,921.92. The stocks of the cash-flow-positive economy helped mitigate the Dow's decline. The S&P500 was similarly blessed falling only 1.89% to close at 1498.58. The Nasdaq got walloped. The Tech laden exchange fell 390.20 points, or 7.86%, to close the week down at 4572.83. The Nasdaq is still up 12.37% in the first quarter.
Next week brings employment data in Canada and non-farm payrolls in the US. The markets remain confused and volatile. Look for more out of the techs next week. Good trading.
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