More Things Change

Signs of change continue to grow in markets around the globe. The exact nature of the change is still unclear. Nervousness has returned to the credit markets, with no less than General Electric (GE) posting a 4% capital loss in an "enhanced cash" fund that was supposed to remain as stable as a rock. Other companies like Bank of America (BAC) have avoided similar fates for their money market funds only by injecting large amounts of company cash to reimburse the funds for losses in mortgage derivatives. As yet, no money market funds have "broken the buck" but it may be only a matter of time.

In any case, the recovery of the financial services sector now appears to have been nothing more than an oversold bounce. Another test of the lows seems likely. Crude oil prices are backing off, to the detriment of energy and energy service sector funds. Capital appears to be flowing toward the traditionally defensive corners of the stock market: utilities, consumer staples, and health care. Financial services, consumer discretionary, and real estate are the most bearish sectors for now, but technology is looking increasingly vulnerable. Further complicating the situation is dollar weakness. From a U.S. perspective, this means better results can be found in foreign stocks, even if those stocks are actually performing no better than their U.S. counterparts. Investment maven Jim Rogers made news today with bearish comments about the dollar and re-stated his intent to be out of dollar-denominated assets in the near future. We find it hard to disagree.