Despite opening sharply higher the major averages couldn’t hold their early gains and enter the final hour about even. For the week the Standard and Poors 500 Index has lost 129 points or 4.5% while the NASDAQ has fallen 312 points or 4% despite little significant news.
Import prices gained .5% in September on a jump in energy costs, particularly oil. Export prices were unchanged for the month. On a year ago basis import prices advanced 3.5%, a 5-month low. Export prices increased 2.7% an 11-month low.
Debt funded corporate share buy backs have been a big driver for the major averages for some time now. While an effective strategy in the short term. On a longer-term basis studies have shown that it amounts to corporate suicide. With the use of various Collateralized Loan Obligations or CLO’s and similar leveraged and often covenant light financing vehicles ever popular. It’s worth noting that the history of various “C” something “O” investments is by and large a disaster. Collateralized Mortgage Obligations or CMO’s where a prominent feature of the last crisis. The primary reason for this is that the banksters have very little incentive to be prudent in their issue and sale because they make money on the loans, and more money on the sales of the Obligations. Once past the 90-day look back provision, if something goes wrong its not their problem in most cases, especially when there is a covenant lite clause attached. Something that enhances investor losses and makes principal recovery just that much harder. Yet various types of obligations, covenant lite, leveraged and other “engineered” products have proven popular with yield starved investors, in the post crisis period. To the point where various pundits are starting to warn about their use and proliferation. The latest being the British Central Bank.
This is Caleb Lawrence Registered Investment Adviser Scotts Valley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call me toll free at 888-RICH PIG / 888-742-4744.
You can catch me on the radio at noon each business day as well on California’s central coast. KPIG 107.5 FM in the Monterey Bay or KPYG 94.9 FM in San Luis Obispo.
Rebroadcasts, additional writings, and other entries are also available on my Blog at www.clinvestments.com
Advisory services offered through Caleb Lawrence Registered Investment Adviser Inc.