Hildebrand will submit e-mails to parliament today that show his wife acted alone in making foreign currency trades that led to calls for him to resign, Der Sonntag reported yesterday, without saying where it got the information. SNB spokeswoman Silvia Oppliger declined to comment.
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Everybody knows that January predicts the stock market’s direction for the year and that the best time to sell stocks is at their spring peak. And among stock market experts, it’s a sure bet that the market will soar in the year before an election.
But what passes for stock market wisdom is suspect when given a closer look. The most common error comes when people spot two events and assume that one causes the other.
And it drives economists, math geeks and plenty of money managers nuts.
“If you look at enough data in enough different ways, you’re going to find something that isn’t really true,” says Edward Keon, who leads a mathematics team at Prudential Financial.
The same seasonal patterns seem to pop up year after year. Some are valuable and some meaningless, Keon says _ like saying stocks tend to rise or fall depending on the month, the temperature in New York City or who wins the Super Bowl.
People “are simply being fooled by randomness,” says Burton Malkiel, professor of economics at Princeton University and author of the finance classic “A Random Walk Down Wall Street.”
Spend enough time digging through numbers and you’re bound to find some that always take the same path, he says. “But none can reliably predict the future.”
Here’s an examination of some of the oldest Wall Street aphorisms.
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The claim: As goes January, so goes the year.
The idea is that January works as a barometer for the stock market’s full-year performance: A strong first month often leads to a year of gains, and a weak one to a year of losses.
It comes from Yale Hirsch, father of the Stock Trader’s Almanac, and looks reliable. Since 1929, the calendar year has followed January’s lead 60 out of 83 times, according to Howard Silverblatt, senior index analyst at Standard & Poor’s. That’s a .723 batting average.
The suggestion that January somehow directs the course of the next 11 months is what irks economists and investors, including Dan Greenhaus, chief market strategist at the brokerage BTIG.
Expecting to hear praise for January’s forecasting powers, Greenhaus attacked the idea on his blog Jan. 2, the day before U.S. markets opened for 2012. He took the S&P 500 index’s returns since 1950, including dividends, and found that the four months following January also appeared to work magic. When April is down, the next 12 months return a negative 0.2 percent. When April is up, the S&P 500 returns 12.8 percent. It’s a similar story with February, March and April. But why?
“It’s true that if January is up, the year is up most of the time,” he says. “But if you look at any month, you’ll find the market tends to be up over the next 12 months. And the reason is very simple: the market tends to be up.”
The S&P 500 has climbed in three out of every four years since 1950. Pick nearly any month in which stocks rose and most of the time you’ll find that the year was headed in the same direction.
But what if stocks fall in January? It doesn’t mean the next 11 months will follow. Sometimes, the stock market starts the year in a hole and digs its way out. In 1992, the S&P 500 dropped 2 percent in January, then ended the year with a modest gain of 4.5 percent.
“If you’re starting in the hole, then the 12-month period is starting in the hole,” Greenhaus says. “That should be intuitive. Instead it gets treated as some sort of prognostication tool. It’s just what happens.”
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The claim: Sell in May and go away.
Like a flock of migrating birds, the stock market tends to travel south or north depending on the season. It rises through the winter months and falls late in the spring. Investors struggle through the summer until November rolls around and the market picks up again.
“Sell in May and go away” is a well-worn saying, but the numbers seem to back it up. Since 1990, the three months starting in July have been the worst quarter for the S&P 500. Last year, the S&P hit its peak on April 29, then hit bottom Oct. 3, right on cue.
Even many skeptics think “sell in May” probably has something going for it _ but they can only guess why.
“It’s harder to debunk this one,” says Nick Colas, chief market strategist at ConvergEx Group.
The flow of money into retirement plans and mutual funds may have something to do with it. Colas says databases that track cash moving into stock funds show patterns similar to the stock market trend: A strong start that evaporates as the year progresses.
In the first four months of 2011, Americans added $13 billion to U.S. stock funds, according to the Investment Company Institute. But they pulled $6.5 billion in May and then began withdrawing much more. By the end of the year, retail investors had pulled $131.8 billion out of U.S. stock funds.
Some tie the summer sluggishness to vacation season. Trading desks are thinly staffed in the weeks before Labor Day. Fewer traders means a drop in trading volume, which makes it easier for markets to take bigger swings, often down.
Here’s where that explanation falls short. Traders return to their desks after Labor Day in September and trading picks up. But for all major stock indexes, September is historically the worst month of the year. Since 1950, it’s the only month in which the stock market has fallen more than it has risen.
It was pretty clear from the start that this week’s news that Saudi Arabia is buying 84 new F-15 fighters from The Boeing Co. would have a big impact on the St. Louis region.
Today, the Regional Chamber and Growth Association took a stab at counting just how big.
While the $30 billion deal is not expected to create any new jobs, it will prolong production of the F-15, which is largely built at Boeing’s plant in north county, by about five years, through 2020.
That production supports about 1,000 manufacturing jobs at Boeing, and contribute to nearly 4,000 more through local suppliers and spinoff activity, according to RCGA economist Ruth Sergenian. Those direct jobs generate $1.1 billion a year in wages and other economic activity, and the indirect impact is another roughly $1.8 billion.
It’s worth noting that these sort of estimates are notoriously rough, and that something else might well fill the void were Boeing’s F-15 production to go away. But, for now, it’s not, and 2.9 billion more dollars flowing through the region’s economy every year is a pretty good thing.
The Obama administration will ask Congress to raise the nation’s borrowing limit by $1.2 trillion this week, marking the third and final increase from a deal negotiated over summer.
Treasury officials said Tuesday that the increase is necessary because the government will be within $100 billion of its current limit by Friday.
The debt limit is the amount the government can borrow to finance its operations. The latest increase will boost that limit to $16.4 trillion. Officials say that should be enough to allow the government to keep borrowing until the end of 2012 _ just after the presidential election.
Congress can reject the request, although Obama can veto their objection. If Congress doesn’t act by Jan. 14, the increase will take place automatically.
The national debt has soared because the government has run record deficits over the past decade. The borrowed money has helped pay for two wars, stimulate the nation’s economy after the worst recession since the Great Depression and finance broad tax cuts initiated during the Bush administration.
The enormity of the debt has also stoked intense partisan debate in Congress over spending and taxes. Polls show growing voter anger with the inability of both parties to reach solutions to the country’s budget problems fast cash now.
In August, Congress and the administration agreed to raise the borrowing limit by $2.1 trillion in three steps. The deal was reached hours before a potential default on the nation’s debt and only after the parties also agreed to cut more than $2 trillion from the deficit over the next 10 years.
Still, the parties are at odds over how to reduce the deficit. In November, a bipartisan panel failed to meet a deadline to agree on $1.2 trillion of the cuts. That means automatic cuts of that amount will begin in January 2013 _ a condition included in last summer’s deal.
Republicans want to modify the timetable for the automatic cuts, largely because it includes steep cuts to the nation’s defense budget.
Congress agreed to raise the debt limit by $400 billion in August and by another $500 billion in September.
House Republicans voted against the second increase. But they failed to block it because the Senate approved it. The increases are scheduled to take effect unless both chambers vote against them.
British tour operator Thomas Cook said Wednesday it will close 200 stores after tourism to Tunisia and Egypt dried up in the wake of the protests earlier this year.
Europe’s second largest tour operator said it will cut 661 jobs and close 115 of its stores immediately, with the remainder going over the next two years.
The group also reported its final year results Wednesday, after postponing their release as it sought new agreements with its creditors. It said its operating profit fell 16 percent to 303.6 million pounds ($471 million).
The company said it has already begun selling off 200 million pounds worth of assets and will suspend dividend payments until the balance sheet improves.
Thomas Cook said it had been hit by several external shocks in the last few years. It suffered badly when the volcanic ash cloud from Iceland shut off European airspace in April 2010.
It also said that the Arab Spring had resulted in a dramatic fall in travel to Middle East and North African destinations and that its operations in Britain and France had underperformed as its traditional customer base of families with young children who holiday in its all-inclusive beach resorts decided to stay home instead.
Thomas Cook shares were down 7 percent to 13.75 pence in morning trading.
Australia’s central bank cut its benchmark interest rate by a quarter percentage point on Tuesday, the second such move in as many months as concern mounts over the fragile global economy.
The Reserve Bank of Australia said its decision to lower the rate to 4.25 percent comes amid uncertainty over the European debt crisis, and concern that global economic conditions could worsen.
“Financial markets have experienced considerable turbulence, and financing conditions have become much more difficult, especially in Europe,” Reserve Bank Governor Glenn Stevens said in a statement. “This, together with precautionary behavior by firms and households, means that the likelihood of a further material slowing in global growth has increased.”
Economists were split on what the bank would do, after it cut the cash rate by a quarter percentage point in November. Tuesday’s decision marked the first time the bank has cut rates in consecutive months since Dec. 2008, the height of the global financial crisis.
The move will provide a savings of an extra 50 Australian dollars ($51) a month on a AU$300,000 mortgage, Treasurer Wayne Swan said.
“Christmas is a time when family budgets are stretched, so I’m certain it will be welcome,” Swan told reporters.
The treasurer said the country’s economy remained strong, but said there are “serious risks” arising from Europe’s debt woes. European Union leaders will hold a summit later this week to discuss a plan to resolve the crisis.
“There is a lot riding on what is happening in Europe as we go through the rest of this week,” Swan said. “All of us hope and pray that the Europeans get their act together.”
Australia’s economy remained strong throughout the global financial crisis thanks to a mining boom largely fueled by China’s demand for iron ore, coal and natural gas.
Craig James, chief economist with the Commonwealth Bank of Australia, said the Reserve Bank will probably cut the rate by another quarter percentage point when it meets again in February. Should the European crisis worsen dramatically, he said, the bank may issue an even steeper cut of half a percentage point.
“In the global financial crisis, they were quite aggressive with cutting interest rates,” James said. “This time around, they’re not taking any chances.”
Global markets rose on Friday as investors welcomed German Chancellor Angela Merkel’s call to enforce tighter government spending rules and a surprise drop in the U.S. unemployment rate.
In a closely scrutinized speech to Germany’s parliament, Merkel said the 17 nations that use the euro currency must move quickly to restore market confidence, changing EU treaties to make financial controls stricter and more binding.
She reiterated her objection to so-called eurobonds _ debt jointly backed by eurozone countries _ and warned that the debt crisis will take years, not months, to fix. But her call for long-term changes suggested a commitment to strengthen financial union between countries in the euro, something analysts have said is necessary to make sure the eurozone doesn’t break up.
Merkel and French President Nicolas Sarkozy are meeting Monday to discuss potential treaty changes. The talks will culminate in a Dec. 9 summit of EU leaders, where the proposals are expected to be debated and detailed.
Investors are hoping if eurozone governments agree to longer-term changes in the way they control their finances, the European Central Bank will agree to step up its interventions in the bond markets. Those interventions keep borrowing rates down for debt-troubled nations like Italy.
Whether the ECB will agree to step up its bond purchases is not clear, although its President Mario Draghi hinted Thursday that it was a possibility.
“Expectations have been growing that a ‘Grand Plan’ will be delivered next week,” said Frederik Ducrozet, analyst at Credit Agricole CIB.
European stocks rose, as did bonds for Italy and Spain. Britain’s FTSE 100 gained 1.1 percent to 5,548.87 while Germany’s DAX added 1.0 percent to 6,094.66. France’s CAC-40 climbed 1.4 percent to 3,172.22.
Italy’s 10-year bond yield was down to 6.52 percent, almost a full percentage lower than Wednesday, an indication investors have high hopes of next week’s talks to save the euro. Spain’s 10-year yield was down to 5.56 percent.
Wall Street also rose on the open _ the Dow Jones industrial average was up 0.8 percent at 12,111 while the Standard & Poor’s 500 rose 0.8 percent to 1,255 after the release of cautiously upbeat U.S. jobs data.
The U.S. government said the unemployment rate fell to 8.6 percent in November, the lowest in 2 1/2 years and better than economists’ expectations for an unchanged rate of 9 percent.
The world’s largest economy also added 120,000 jobs in November, while the previous two months were revised up to show another 72,000 more jobs were created _ the fourth straight month the government revised prior months higher.
Although the drop in the unemployment rate was unexpected, the increase in jobs was roughly as forecast by most analyst.
Earlier in Asia, Japan’s Nikkei 225 index rose 0.5 percent to end at 8,643.75, its highest closing in three weeks. Hong Kong’s Hang Seng rose 0.2 percent and Australia’s S&P/ASX 200 added 1.4 percent.
South Korea’s Kospi was marginally down and mainland Chinese shares also lost ground as investors cashed in on earlier gains. The benchmark Shanghai Composite Index lost 1 percent.
Markets continued to enjoy some momentum from Wednesday, when the U.S. Federal Reserve, European Central Bank, Bank of England and the central banks of Canada, Japan and Switzerland jointly made it easier for banks to borrow dollars.
The coordinated effort was meant to prevent Europe’s debt crisis from exploding into a global panic. Should a European bank fail or if a country default on its debt, investors fear it could result in a freeze-up in global lending like the one that occurred in 2008 when Lehman Brothers collapsed.
China’s central bank also acted to release money for lending and to shore up growth by lowering bank reserve levels for the first time in three years. The bank actions caused global stocks to rally Thursday.
Benchmark oil for January delivery was down 5 cents to $100.15 per barrel in electronic trading on the New York Mercantile Exchange on Friday. The contract lost 16 cents to end at $100.20 per barrel on the Nymex on Thursday.
In currency trading, the euro rose to $1.3478 from $1.3460 late Thursday in New York. The dollar rose to 77.93 yen from 77.76 yen.
India is opening its $400 billion retail industry to global chains such as Wal-Mart in a move that could improve decrepit infrastructure that causes massive food waste in a country plagued by malnutrition and high inflation.
Top retailers have lobbied for years for a chance to build stores in the nation of 1.2 billion people and political deadlock on long-promised reforms in retail and other areas has helped cool foreign investor interest in India. Foreign retailers have Indian partners in wholesale operations, but no retail stores.
“Multibrand” stores such as supermarkets could be built with up to 51 percent foreign ownership under the change the Cabinet approved Thursday. The Cabinet also allowed 100 percent foreign ownership of single-brand retail operations, up from 51 percent.
Advocates see the move as a way to strengthen India’s creaking food distribution system.
The country suffers chronically high malnutrition and soaring inflation, but it’s not for lack of food. It is the world’s second largest grower of fresh produce, yet loses an estimated 40 percent of its fruit and vegetables to rot because of a lack of refrigerated trucking and warehouses, poor roads, inclement weather and corruption. That translates into lower incomes for farmers and higher prices for consumers.
If companies such as Wal-Mart and Tesco can open shops of their own, they may invest billions in improving farming techniques and getting produce into stores more efficiently, bringing down food inflation _ which has averaged 10.5 percent over the last year _ and possibly improving rural incomes.
Wal-Mart, British-based Tesco PLC and French-based retailer Carrefour welcomed the decision.
“This legal evolution should contribute to modernize the Indian food supply chain and to fight against food inflation for the benefit of Indian customers,” Carrefour said in a statement. It said the decision would help India’s farmers and the nation’s general economic development.
Opposition parties and some allies of the government resisted the move. The country has struggled to find consensus because of concerns that competition from the foreign retail giants could hurt millions of small shopkeepers, as well as the poor best payday advance.
Speaking on the NDTV news channel, ruling Congress party spokesman Abhishek Manu Singhvi called the decision “centrist and reasonable.”
The main opposition, the right-wing Bharatiya Janata Party, decried the move.
“The government has clearly bowed to international pressure,” spokesman Chandan Mitra told the same TV channel.
India’s $400 billion retail sector is the nation’s second-largest employer, after agriculture, according to consulting firm Deloitte.
The Ministry of Commerce says it will cost 76.9 billion rupees ($1.7 billion US) to build the additional 35 million metric tons of food storage India needs. In a July paper, it suggested that loosening restrictions on foreign investment in India’s retail sector could be the best way to get more storage space built.
Ashish Sanyal, managing director of retailing consultancy AMP Retail Services, said small businesses had nothing to fear from the big chains.
“At the end of the day this is like the high tide. All boats will rise. We will learn from the big retailers.”
Long delays in economic reforms in India have made investors increasingly wary of plowing money into the country.
India’s policymakers are now under acute pressure to find ways to attract foreign currency to help strengthen the rupee, which hit an all-time low against the dollar this week.
Traders say the central bank has been buying rupees in recent days but those measures are unlikely to reverse the currency’s plunge absent more farsighted policy reform.
The discussions on opening up India’s retail sector have been going on for 10 years.
“There is a limit to how much time we can spend on a decision,” said Singhvi, the Congress spokesman.
Gilead Sciences says it will spend $11 billion to buy drug developer Pharmasset at a price more than 88 percent over the stock’s latest closing price in a bet on its experimental hepatitis C treatments.
Gilead says it will pay $137 per share in cash for each Pharmasset share. That stock closed at $72.67 on Friday.
Pharmasset said earlier this month it had started late-stage clinical trials of an experimental hepatitis C drug. It also plans two other late-stage trials in 2012.
Hepatitis C is a viral infection that often has no symptoms but which can lead to life-threatening liver damage.
Gilead will pay for the deal with cash on hand, bank debt and senior unsecured notes. It expects the acquisition to close in next year’s first quarter.
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