First weekly gain in five for US stocks

The S&P 500 closed at 1,120.68 on Friday, down for the day but up 2.5 percent over the previous week. This was its first weekly gain in five weeks.

The recent low for the S&P 500 is 1,084.10, which it closed at on 17 May. That low is 6.4 percent below the recent high of 1,157.76 hit on 11 Feb.

So the recent correction has been relatively mild so far.

I suspect there will be more weakness to come, though. While I think interest rate hikes have been largely priced into the market, high oil prices and turmoil in Iraq will create uncertainties in investors' minds and deter them from putting more money into the market in the immediate future.

Improving job outlook for Singapore

The job outlook certainly looks to be improving in Singapore. The latest indication comes from the number of job advertisements in newspapers.

According to The Business Times article Job ads jump 50% in April led by services, data on job advertisement volume -- as compiled by Singapore Press Holdings -- grew in April across all sectors. Total volume was up 50 percent, the strongest growth in more than two years. It was the fifth consecutive month of overall positive growth in recruitment ads. Advertisements for service jobs jumped 58 percent year on year.

The report is consistent with my article Jobs in Singapore grow with economy, for now posted just two days ago, in which I pointed out that jobs are being created with the improving economy, but the trend is toward more service rather than manufacturing jobs.

Another term for Alan Greenspan

Federal Reserve Chairman Alan Greenspan helped create a stock market bubble in the late 1990s, as I suggested in The stock market bubble and the Federal Reserve. Many observers think he created other bubbles as well.

In The Bubbles Mr. Greenspan has Created!, Marc Faber calls the Fed chairman a "serial" bubble blower. He blames Greenspan for creating bubbles "all over the world - in stocks and bonds of emerging economies, the currencies of Australia, New Zealand and South Africa, in housing, and lastly in Chinese capital spending, which is now growing by more than 40% per annum, as well as in commodity prices".

That didn't stop President George Bush from nominating Greenspan to a fifth term as chairman. Paul Kasriel of The Northern Trust Company wrote in his daily commentary yesterday: "It is not surprising that Alan Greenspan was re-nominated to be chairman of the Federal Reserve. What was surprising is that he accepted the re-nomination."

Kasriel thinks that "[b]ecause the prices of goods and services are beginning to rise faster, Greenspan has no choice but to put up interest rates in an effort to slow the growth of central bank-sponsored credit. This runs the very real risk of bursting the housing bubble in the next two years. Why wouldn’t Greenspan leave this potential debacle to his successor to deal with? Why not go out on top of the world now? Does Greenspan’s pride goeth before his fall?"

In the short term, bubbles may cause inflation, but they eventually end in deflation. This sequence of events may already be unfolding. Even as prices of assets and commodities have risen all over the world, signs of oversupply are beginning to appear. In his post Soya Soya, Edward Hugh mentions that "cargoes of South American soyabeans are stranded at Chinese ports" and suggests that "the drop in prices is fairly generalised in commodities".

Kasriel may be wrong. Greenspan may not even have to wait two years for the bubble to burst.

Singapore stocks continue to fall

The job market in Singapore seems to be making a definite turn for the better (Companies upbeat on wages, Demand for finance execs strongest since 1996) along with the economy (March chip equipment sales surge to US$3.9b).

Equity investors, however, appear to continue to focus on the impending US interest rate increase, China's overheating and record oil prices, with the Straits Times Index falling another 23.63 points today to close at 1,754.96, the fourth down day in five this week.

I expect the Singapore market to continue on this downward trend for a while more.

Asian markets down again

Another bad day for stocks in Asia.

Index	Value	Change	% change
Nikkei 225	10,825.10	-328.48	-2.95%
Hang Seng	11,396.94	-131.24	-1.14%
Korea Composite	790.13	-26.96	-3.30%
Straits Times	1,778.59	-23.58	-1.31%
KL Composite	803.11	-15.61	-1.91%

Concern over rising oil prices weighed down stocks. Airline stocks were hard hit. Singapore Airlines fell 2 percent to S$10, Cathay Pacific fell 2.6 percent to HK$13.10 and Qantas Airways fell 3.3 percent to A$3.26.

News that China's industrial production and money supply (M2) both grew 19 percent from a year earlier didn't help, reminding investors that tougher measures to cool down China's economy may still be on the cards.

Looks like a major stock market correction is truly underway.

Stock markets suffer big correction

Stocks got thrashed on most markets yesterday, especially on Asian markets.

S&P 500	1,087.12	-11.58	-1.05%
Nikkei 225	10,884.70	-554.12	-4.84%
FTSE 100	4,395.20	-103.2	-2.29%
Hang Seng	11,485.50	-425.26	-3.57%
Korea Composite	790.68	-48.06	-5.73%
Straits Times	1,791.78	-51.94	-2.82%

Barry Ritholtz at The Big Picture thinks that the market has priced in rising interest rates and oil prices (see Market Adapting to Ugly Realities). Well, doesn't look like it to me.

It looks like stocks are headed for a major correction in the new few weeks or months. For most markets, this is the first major correction since the current rally began last year. As I mentioned in an earlier post -- Economy peaking -- or is it? -- it's unusual to have a market complete a rally with just one huge impulse wave without any intermediate correction. So I think the current correction constitutes an intermediate corrective wave and will be followed by a resumption of the rally later in the year.

Economy still going strong

The economic news flow continues to look good.

The US has been seeing some impressive numbers. First-quarter profit for S&P 500 companies increased 26.8 percent, based on results for 443 members that have reported. Economists surveyed this month by Bloomberg News projected that the US economy will grow 4.6 percent this year, the most since 1984. And just yesterday, the US Labor Department reported that companies in the US added 288,000 workers to payrolls in April, following a revised gain of 337,000 jobs in March (see U.S. April Payrolls Rise 288,000; Jobless Rate Falls).

Singapore has also been seeing good news. Results of surveys by the Singapore Institute of Purchasing & Materials Management and the Economic Development Board indicate that the manufacturing sector, especially electronics manufacturing, will remain strong in the coming months (see Good outlook for Singapore manufacturing and electronics). And on Thursday, SingTel announced record profits, share buybacks and increased dividends for shareholders (see SingTel reports good results, rewards shareholders).

The main concern now is whether rising inflation and interest rates will put an end to the boom. US PPI and CPI data for April, due to be announced on 13 and 14 May respectively, should provide additional clues on the direction of interest rates.

End of disinflation

In Disinflation: The 3x3 World, David Roche, chief strategist at Independent Strategy in London, argues that the world's "debt mountains will not be eroded much by the moderate rise in inflation, but the cost of servicing the debt will jump significantly".

That will force consumers in the US to cut spending, slowing economic growth. The US dollar will fall and equity markets will be hit. Rising inflation means bonds will also suffer.

Roche suggests that investors "raise their sights beyond the immediate prospects for financial markets toward the search for alternative assets, such as commodities, gold-linked investments and private equity."

Pretty depressing stuff, overall.

Global Crossing in trouble again

During the Internet boom of the 1990s, Global Crossing built the world's most extensive high-speed fiber-optic network. In the Internet bust that followed, the company collapsed under $12.4 billion in debt. The US federal government last September approved its sale to ST Telemedia, the Singapore government-linked company that bought 61.5 percent of Global Crossing for US$250 million.

Global Crossing emerged from bankruptcy in December. But now, it faces more problems. On Tuesday, it reported that it expected to restate last year's results after underestimating access fees the company owes other telecommunication companies by US$50-80 million.

ST Telemedia says it is prepared to put up an additional US$100 million to keep Global Crossing afloat. However, analysts estimate that ST Telemedia, as the majority shareholder, may have to pump as much as US$250 million into Global Crossing this year to keep it in operation.

Global Crossing is proving to be quite an expensive acquisition for ST Telemedia.

No deflation risk

A new study by the Federal Reserve Bank of Atlanta published in the First Quarter 2004 issue of the Economic Review suggests that the deflation scare last year was overstated. According to the article titled Decomposing Inflation, disinflation had been concentrated mainly in rent and used car prices.

If disinflation was not as bad as previously thought, it means that the prolonged monetary stimulus that the Fed is dishing out may be unnecessary. Worse, it may even been counterproductive if it leads to over-accumulation of debt, which increases the risk of deflation -- the very problem that the Fed is trying to prevent (see also Stocks rise amid deflation confusion).