Insights

Wall Street Wrap – Dow Jones New 2009 Highs, Freddie and Fannie called Worthless

The Dow Jones Industrial Average, The S&P 500 and the Nasdaq 100 all traded new 2009 highs today as the market posted solid gains on the first trading day of the week.  Keefe, Bruyette & Woods (NYSE: KBW) were not pulling any punches as they came out saying Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) were worthless, as in putting a big ‘$0.00′ valuation on the stocks of the GSE’s.  Fannie and Freddie’s stock got hit on such a dire prediction, dropping 22%  each (FNM, -$0.32, $1.14), (FRE, -$0.37, $1.35).  The only good news, if you can call it that, is that the stocks are so low priced that unless you were holding a dump truck full you didn’t lose that much money.

The Dow traded as high as up 122 points midday and closed up 96.28 (+0.96%, 10,092.19) with this being a new 2009 high close.  The S&P 500 followed suit gaining 10.23 points (+0.94%, 1,097.91) and traded 1,100 today before backing off.  Not to be left behind, the Nasdaq 100 closed at 2009 highs up 17.36 points (+0.99%, 1756.68).  The leading sector was energy today, up 1.59% as oil topped $79 a barrel.  The finance sector ran a close second today up 1.45%.

The debate about the weak dollar is heating up, with Greenlight Capital Hedge Fund Manager David Einhorn saying they see a currency collapse coming and Fed Chairman Bernanke warning about the U.S. budget deficit.  Einhorn predicted the Lehman collapse and he is not just blowing hot air on this prediction, as he said the fund has placed bets on long term interest rates going a lot higher in Japan and buying physical gold.  Over the past few months we have seen the market move higher each time the dollar dropped as U.S. stocks are valued in dollars.  This functions basically the same way the weak dollar pushes up the price of gold and oil, as when the dollar gets weak you need more of them to purchase the same perceived value of a stock.  You might think this good, but sooner or later a tipping point will be reached after which the inflated market, yes a bubble again, is very susceptible to being ‘popped’ and after that a fast drop.

The PowerShares Dollar ETF (NYSE: UUP) closed at a 2009 low, dropping 0.48% (-$0.11, $22.36).  This caused the weak dollar inflationary effects that boosted oil, gold, stocks and pretty much the price of everything.  Nymex crude was last seen trading at $79.25 a barrel (+$1.08, +1.38%, 4:13 p.m.)  Copper soared higher today as China’s bullish economic growth data caused the iPath Copper ETN (NYSE: JJC) to gain 4.01% (+$1.575, $40.765).  The Spdr Gold ETF (NYSE: GLD) closed within 3 cents of its all time high close gaining 41.05 (+1.01%, $104.23).  New york Spot Gold was up $11.10 (+1.05%, $1,063.90, 4:55 p.m.)

Hedge fund traders on TV were heard saying that the short-the-dollar-long-gold trade, was as crowded a trade as they had ever seen.  When you get a whole bunch of traders leaning in the same direction they start watching each other and it turns into a game of high stakes chicken.  If that trend they are all betting on going one way starts to even smell like it might reverse, you get a very fast unwinding and a rapid short squeeze as traders get whip-lashed trying to reverse all their positions as the same time.

Consumer tech product superpower Apple Inc. (NSDQ: AAPL), reported after the bell today and beat expected earnings by 40 cents ($1.82 vs. $1.42) and, just as importantly, beat their revenue estimates by $670 million ($9.87B vs. $9.2B).  Apple was last seen trading $203 .30 in the after market, after closing up $1.81 today at $189.86.

Earnings of note tomorrow: AYE-before market open, ADM-bmo, BMC-after the close, SAM-atc, CHD-bmo, CVS-bmo, ED-bmo, DHI-bmo, DVA-atc, DBD-bmo, DUK-bmo, ERTS-atc, FCN-bmo, IT-bmo, HNT-bmo, KND-atc, KFT-atc, MGIC-bmo, MVL-bmo, NI-bmo, ONXX-atc, PPL-bmo, PGN-bmo, PL-atc, SPG-bmo, SE-bmo, THC-bmo, TIE-bmo, TM-2 pm, UNM-atc, AUY-atc.

NOTE:  The large number of electric utilities reporting tomorrow.