In baseball three strikes send you back to the dugout. In California courts three strikes send you to the penitentiary for life. However, on Wall Street, three strikes simply earn you a fresh set of pitches. When the third quarter began there was virtual unanimity on Wall Street that stocks would out-perform bonds; that commodities prices, particularly oil, would recede; and the U.S. dollar would rise in value. Not only did Wall Street miss wildly, they fanned three softballs lobbed right down the middle.
Strike one. During the third quarter all three of the major U.S. stock market indexes lost ground, with the Dow, S&P, and NASDAQ losing 3.42%, 2.01%, and 7.37% respectively. Bonds however, produced nominal gains of about 3.5% on the quarter, with the yield on 10 year treasures falling by about 50 basis points.
Strike two. Oil prices, instead of falling, soared to all time highs, closing just under $50 per barrel, gaining 36% on the quarter. Commodities prices in general also rose sharply during the third quarter, with the CRB Commodities Index rising 7%, closing at a twenty four year high, and the Goldman Sax Commodities Index rising 13%, closing at a new all-time high. Since their lows in 2001, these two indexes are up 55% and 110% respectively. Gold prices rose by over 6% on the quarter and the Philadelphia Gold and Silver Index (XAU) gained 18%.
Strike three. Rather than rallying the U.S. dollar lost value again, with December U.S. dollar index futures ending the quarter on fresh life-of-contract lows.
Amazingly, despite being zero for three on the quarter, the advise and predictions of many of these “experts” are still eagerly sought after by investors and the media. What both groups should do is take all these Wall Street “experts” into the board room, wave their fingers in they faces, and say “you’re fired!”