Week on Wall Street

Another Slow Week On Wall Street

By Robert Perrego, at 1:20 pm on December 19th, 2009

Stocks went up and down this week on Wall Street as they always do and the net result on the broadest stock index, the S&P 500, was a loss of 0.36% or 3.94 points.  On Monday, the S&P 500 closed at its highest level of 2009 at 1114.11.  On Tuesday the dollar jumped higher and the markets sold off.  The biggest moves of the week were the fossil fuels as inventory data and a cold front sweeping North America drove natural gas higher by 10.97% and crude started the week below $70 and finished above $73 for a 4.73% gain.

For over a month the S&P 500 has been in a narrow sideways trading range between 1087 and 1110, with exception for Monday when a short-lived breakout was attempted.  The S&P 500 closed out Friday near the middle of this range at 1102.  While the S&P 500 is the broadest stock index, the tech heavy Nasdaq 100 closed out the week at 1807, nearer to the high end of its trading range (1767 to 1810) showing that tech is less susceptible to a rising dollar.  The weakest index, relatively, has been the Dow Jones Industrial Average which closed nearest to the lows of its range at 10,328 (10,300 to 10,480).

The connection the dollar has to stocks is via the much talked about carry trade.  With U.S. interest near zero the weak dollar has been shorted by the ‘carry trade cowboys’ and those funds put to work buying stocks and other ‘risky’ assets.  The relative strength of tech stocks shows that when the dollar rises and the shorts need to cover, the stocks they are least willing to sell to replace these funds are technology stocks.

At the start of the week the biggest story was a monster deal in oil and gas with Exxon Mobil Corp. (NYSE: XOM) buying XTO Energy (NYSE: XTO).  Exxon’s fossil fuel portfolio is heavily weighted towards oil and XTO towards natural gas.  This buyout may be a large play to hedge the historically wide spread between the costs on natural gas and oil.  Thus far the 10% rise in natural gas and 4.73% rise in oil has proven this strategy correct.  Monday also saw Citigroup Inc. (NYSE: C) get clearance from the U.S. Treasury to repay their TARP funds.

The Federal Open Market Committee held their last two-day meeting of the year on Tuesday and Wednesday, and announced they were standing pat on interest rate policy.  Comments on the decision to leave rates unchanged indicated that the Fed saw job losses slowing, but jobs were still being lost.  Of most importance in this announcement may have been that they were ending their quantitative easing program (purchases of agency backed mortgage debt) on February 1, 2010.

Wednesday also saw the Federal Trade Commission file a suit against Intel Corp (NSDQ: INTC).  The lawsuit cites bundling practices and even a secretly redesigned compiler software that makes their competitors chips run a little slower.  Intel competitors Nvidia Corp. (NSDQ: NVDA) and Advanced Micro Devices (NYSE: AMD) traded higher on this news.

On Thursday, Standard and Poor’s downgraded the government debt of Greece to BBB- causing investors to flee to the safety of the dollar and dump their riskier assets.  This caused the largest losses of the week for stocks as the DJIA dropped 132 points, which comprised most of its total loss for the week.  Citigroup sold 5.4 billion shares and the Treasury, as the secondary price was too low for its liking, decided not to sell any of their shares.  Gold dropped $40 an ounce on the dollar strength.  The SPDR Gold Trust (NYSE: GLD) closed below its 50 day exponential moving average for the first time since August.

On Friday the dollar traded higher but reversed course and closed flat.  Gold bounced back $15 an ounce and the GLD regained the 50 day EMA, closing just above.  Common technical analysis theory states one of the conditions for a break in a support level to be two consecutive closes below it.  The bounce back in gold saved the technical picture and also, now that the support level has been shown to hold, the bullish picture for gold is a bit stronger.  Beware, this might seem like the bottom of the ‘dip’ that all the gold bulls say you should buy, as the next few days will give a clearer picture as to whether the dip drops or pops.

Friday was a quadruple options expiration day and the action in the last 20 minutes contained more volatility than all day long.  The last 20 minutes saw the stock indexes run up into the close.  Once again, tech was relatively strong as the Nasdaq 100 rose all day long on earnings announcements by Oracle Corp. (NSDQ: ORCL) and Research in Motion Ltd. (NSDQ: RIMM) Thursday after the close.

On the week the action was in the fossil fuels and gold.  Below are some ETF and stock index movements that sum up the week.

Dow Jones Industrial Average  -143 points, -1.36%

S&P 500  -3.94 points, -0.36%

Nasdaq 100  +15.26 points, +0.85%

Gold ETF (GLD) -$0.37, -0.34%

Copper ETN (JJC)  -1.3 cents, -0.03%

Coal ETF (KOL)  +14 cents,  +0.4%

Oil ETF (USO)  +$1.18, +3.33%

Natural Gas ETF (UNG)  +$1.05, +10.97%

Steel ETF (SLX)  -11 cents, -0.18%

Agriculture ETF (DBA)  -1 cent, -0.03%

Dollar ETF (UUP)  +$0.33, +1.45%

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Week on Wall Street

Weak Week for Commodities on Dollar Strength, Stocks see less Action

By Robert Perrego, at 10:07 am on December 12th, 2009

With the end of the calendar year so close it looks like a few of the players have gone to the sidelines and are thinking more about gifts to buy for the holiday season than stocks.  The Dow Jones Industrial Average gained 83 points on the week while the S&P 500 and the Nasdaq 100 had net movement of less than one point.  In percentage terms, the PowerShares DB US Dollar Index (NYSE: UUP) climbed 0.88% while gold dropped 3.9%.  Oil began the week above $74 and finished out below $70 for the first time in since September,

The year has been a wild ride with the stock market dropping to below 7,000, bottoming out in March and then commencing a huge rally to the 10,000+ level we are at today.  This movement gave traders plenty of action to build their performance on, but that is only if you are on the right side of the trade.  With three trading weeks to go before 2010, funds that have hit their numbers for the year have packed it in and this could be responsible for the decreases in volume and volatility the market has experienced.

Monday saw the DJIA experience a net movement of less than 2 points and gold lost a few dollars.  The market must have had the cross-hairs on oil as the slippery black gold dropped over 2%.  CNBC was ripe with traders, economists and pundits debating the future of gold.  The Friday before saw a $48 an ounce drop in the price of gold as the Dubai World problems became public.  Fed Chairman Ben Bernanke gave a speech that watchers interpreted to mean no rate hikes would be coming anytime soon.  Again.  Intel Corp. (NYSE: INTC) dropped plans to produce a stand alone graphics chip and Advanced Micro Devices (NYSE: AMD) and Nvidia Corp. (NSDQ: NVDA) rallied on this news.

Tuesday brought a little action as the dollar rallied and the DJIA dropped 104 points.  The close Tuesday would mark the low close for the market for the week.  The financial news flow slowed but that was made up for by the news out of Washington D.C.  Obama stated in a speech he wanted to use repaid TARP funds to generate more jobs.  Theoretically, some think government spending generates zero jobs as taking $60,000 out of the economy via taxes and spending that same amount to pay someone a $60,000 salary leaves a net zero economic effect.  If there is any waste or frivolous spending (everyone knows the government would not do that) then you end up with a net negative economic effect.  As it may be politically unpopular to pass ‘Stimulus, The Sequel”, Obama seems to be looking around for any available funds, TARP, as a viable source for more spending.

Wednesdays big news was Citigroup Inc. (NYSE: C) stating they wanted to repay the funds they received from TARP.  Bank of America Corp. (NYSE: BAC) did it the week before by issuing a massive secondary offering that raised $19.3 billion.  Analysts estimate that Citigroup would dilute their stock by as much as 20% by doing this.  Fed Secretary Tim  Geithner extended the TARP program by a year, possibly to keep the program open so Obama could tap the fund for other spending.  Commodities were weak across the board.  Gold traded higher, then lower and then back to where it started and oil got hit for another 2.68% down to $70.69 a barrel.

The biggest moves Thursday were in health care stocks as the Senate Democrats backed off their plans to require a public option in health care reform.  UnitedHealth Care (NYSE: UNH) and Cigna Corp. (NYSE: CI) jumped up over 6%.  Some very positive news surfaced that household wealth increased by $2.7 trillion in the third quarter as housing prices actually rose and the run up in the stock market put more dollars into trading and retirement accounts.

Friday gave us strong Retail Sales data and showed Consumer Confidence was on the rise propelling the stock market higher.  This bodes well for the economy as the consumer and consumption drives our economy.  The DJIA climbed 66 points which turned out to be most of its weekly gain.  The dollar was strong again and commodities weak with oil closing below $70.  Regulatory reform moved along as the House passed their latest attempt to avert another financial problem via more regulation.  The problem here is, historically such attempts only seem to fix a past problem and have seemed to only cause the next one.

So, with three trading weeks to go to finish out 2010 we are still above Dow 10,000, oil is below $70 and hopefully the consumer is getting stronger.

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Wall Street Wrap

Oil Catches Up Going Down, Gold Bulls Dig In

By Robert Perrego, at 4:51 pm on December 7th, 2009

The big news Friday, and last week, was the jobs report which caused the sagging dollar to rally 1.48%, and seemed to spell the end for the commodities trade, especially the exploding gold market.  Friday, Nymex crude lost only 99 cents a barrel while gold got hammered for $46 an ounce after falling over $70 at one point.  Today, New York Spot Gold was trading lower by only 0.32% (-$3.70, $1,157.70, 4:25 p.m.) while oil extended its losses by 2.04% (-$1.54, $73.96, 4:10 p.m.).  The dollar jump that was sparked by Friday’s move in the headline unemployment rate to 10% from 10.2%, was slowed by a speech Ben Bernanke gave that traders interpreted to mean that a rate hike was not coming anytime soon.

The stock market had a short run up early, but came back in and spent the rest of the day going nowhere. The Dow Jones Industrial Average closed up just 1.21 points (+0.01%, 10,390.11) while the S&P 500 dropped 2.73 points (-0.24%, 1,103.25).  The Nasdaq 100 lost 8.26 points (-0.46%, 1,783.65).

The TV talking heads focused on when the fed rate hikes would come and also about hedge funds moving to the sidelines for the rest of the year.  After this year’s massive drop and pop in the stock market, any hedge fund managers that avoided dissolving and have met their numbers for the year (or even come close), are speculated to be moving to the sidelines for the rest of the year.  The volatility in stocks has dried up as of late, and the last big momentum trade and market action was in commodities.  The SPDR Gold Trust (NYSE: GLD) traded a massive 79 million shares Friday, which may have been all the ‘hot’ money getting out, while the longer term bulls were buying the dip.  Star hedge fund managers George Soros and John Paulson are gold bulls and they are investing for the long term.  Most the talking heads interviewed today were still of the opinion that in the longer term, gold is going higher.

The gold market had been heating up for a few months sparked by various news stories about central bank purchases, John Paulson splitting off a special fund for gold and Barrick Gold Corp. (NYSE: ABX) buying back in billions of dollars worth off hedges.  This created a feeding frenzy and that inevitable game of chicken a market gets into when players smell profit.  The small loss in gold today, after dropping so much early in the trading day, showed no follow through on Friday’s selling.  This buying might be indicating the underlying strength in a longer term move.

On the tech side, Intel Corp. (NSDQ: INTC) dropped plans to roll out a stand-alone graphics chip and this boosted Nvidia Corp. (NSDQ: NVDA) by 12.8% (+$1.83, $16.09), which is the dominant player in the space.  Advanced Micro Devices Inc. (NYSE: AMD) got a foothold in the graphics chip market by merging with ATI Technologies, and gained 8.4% on the news (+$0.66, $8.52).

The economic calendar is light this week as the market takes a seasonal slow-down going into the holiday period.  We get no major economic releases until Thursday with the weekly Jobless Claims and International Trade numbers at 8:30 a.m.  Federal Reserve Governor Elizabeth Duke speaks to the Chicago Fed’s mortgage foreclosure policy conference in Chicago at 12:45 p.m. on Thursday.

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Wall Street Wrap

Housing Numbers Bad, Gold Good. Again.

By Robert Perrego, at 11:03 pm on November 18th, 2009

So this is not a daily “gold to the moon” column, it just so happens that gold keeps going higher while housing gets worse.  The SPDR Gold Trust (NYSE: GLD) traded a new high at $113.09 while spot gold hit $1,153.90.  This morning at 7 a.m., the Mortgage Bankers’ Association Purchase Applications report showed they dropped 4.7%.  Last week it dropped 11.7%.  Applications are declining less quickly, but are still declining, and are now at their lowest level since 1997.  Then the CPI came out higher than expected at 0.3% vs. the 0.2% expected, meaning inflation may be kicking in.  My favorite part about this number is when they say “less food and energy”, because of course food and energy are not important.  Then Housing Starts were reported at a disappointing 529k vs. the 600k expected.  The new home buyer tax credit has been extended  and it seems like the U.S. Government will give you (or promise you) Rhode Island if you buy a new house, and still – low activity.  So what is a trader to do?  Buy gold.

After trading as low as 10,360, the Dow Jones industrial Average rebounded to close down just 11.11 points (-0.10%, 10,426.31).  The broader S&P 500 was off fractionally, dropping 0.52 points (-0.04%, 1,109.80) and the tech heavy Nasdaq 100 lost 10.47 points (-0.57%, 1,801.74)

Goldman Sachs call last week that central banks were becoming buyers of gold was dead on as yesterday Mauritania bought 2 tonnes of gold off the IMF.  This comes on the heels of India backing up the truck for 200 tonnes last week.  Hedge Fund superstar John Paulson has bought a lot of gold already, but he wants more.  Paulson is starting a new fund for gold and gold derivatives in 2010.  So what do you do when the smart people and the biggest buyers in the world, central banks, are buying?  You buy.  Period.

New York Spot Gold traded an all time high of $1,153.90 before settling back lower and was last seen trading $1,144.80 an ounce (+$4.20, +0.37%, 4:25 p.m.).  In the last 15 trading days, gold is up about $115 an ounce or 11.4%.  Is this the top?  Is gold in a bubble?  Well, they said $1,000 was too high and before that $900 was a bubble.  No one really knows what the fair value for gold is, but looking to the desires/needs to own it tells you 3 things; 1) it is perceived as being better than holding dollars, 2) the central banks of China, India, Chile and Mauritania have shown they think it is better to hold than dollars, and 3) John Paulson, a very smart guy, wants to spend more dollars to buy gold and gold stocks at a time when gold is at an all time high.  My conclusion – gold is going higher.

Now from gold to Goldman.  Charlie Gasparino from CNBC was on TV calling for Lloyd Blankfein to resign.  I hate to flack Charlie as he set me up for my first Wall Street interview and job, but… shaddup already!  Charlie was complaining that Goldman used the government guarantee to issue Goldman bonds during the depths of the crisis and was now a commercial bank.  Of course they did!  The U.S. Government rolls out a plan to help refinance the banks as SOME of them were about to collapse and Goldman got in on it for low cost financing.  What do you expect them to do?  Then the Government allows Goldman access to the Fed window for cheap short term financing.  So Goldman jumps on it and uses very cheap money from the Fed window and pumps it into the market to make more money.  What do you expect them to do?  Goldman paid the TARP money back.  Goldman is doing what they always do – make money.  Hey Lloyd, stop apologizing, and until the country starts spelling it Amerika – do what you do best, make money.

Advanced Micro Devices (NYSE: AMD) jumped up 10.42% today and some news sources were reporting this was because of the settlement with Intel Corp. (NYSE: INTC) for $1.25 billion.  I have another few news flashes for you then, ’sand found on beach’ and ‘water is wet’ as this news is as old as, well, November 12th.  If this was not the easiest 10% everyone missed (including myself), I don’t know what is.  Ok, maybe the 11.4% in 15 trading days for gold was pretty obvious, but I did not miss that one.

Looking ahead for the next big percentage move most of us will miss, we have Jobless Claims on the calendar tomorrow.  Jobless Claims, always the life of the party, are expected to be 504,000.

On Friday Philadelphia Federal Reserve President Charles Plosser speaks in Singapore.  Today, St. Louis Fed President James Bullard remarked that if the Fed reacts like it has to past recessions, interest rates were not going up until into 2012.  In the last week, every other Fed President, Chairman, janitor and bottle washer has said interest rates will probably stay low for a long time, a jobless recovery is likely and inflation may end up becoming a problem.  Friday we find out what Charlie (not Gasparino) thinks.

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Week on Wall Street

The Fed Presidents and The G20 Clear the Way

By Robert Perrego, at 9:00 am on November 14th, 2009

Low interest rates may percolate some future inflation for us, but one other thing they bring is higher asset prices.  This Week on Wall Street saw gold trade a new all time high and all three major indexes, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq 100, traded new 2009 highs.  On the week, gold gained 1.96% even while the  dollar gained ground slightly and on Friday news out of Vietnam was that they were lifting restrictions on import of the precious metal.  The Nasdaq 100 was the strongest index of the week gaining 3.34% with the Dow Jones Industrial Average up 2.46% and the S$&P 500 turning in a 2.26% performance.  The loser of the week was oil as weak economic reports for the U.S. tempered expected demand.

On Saturday the G20 met with the world’s central bankers agreeing to keep the mountains of economic stimulus in place, meaning low interest rates had clear sailing ahead.  This agreement powered stocks higher Monday with the Nasdaq and the Dow steaming ahead and setting 2009 highs, while the S&P 500 closed just 4 points short of its high.

On Tuesday microphones were turned on all over the country for the regional Fed Presidents.  Janet Yellen (San Francisco), Dennis Lockhart (Atlanta), Jeffrey Lacker (Richmond) and Richard Fisher (Dallas) all spoke to different venues opining that they saw, among other things, a jobless recovery and low interest rates ahead.  With the official unemployment rate at 10.2% and rising, there is a lot of pressure from both Washington D.C. and across the United States to keep interest rates low for job creation.  Telling the carry trade cowboys that interest rates are staying low is like sounding the all clear bell for shorting the dollar and buying ‘risky assets’.  When you can short the dollar at 0-0.25% and take that money to buy stocks and commodities the ‘free money’ bell goes off in these players heads and the buying starts.

Wednesday started with a bang in the gold market as Goldman upped their estimates for the precious metal to $1,200 citing their observation that the world’s central banks are becoming net buyers of gold.  China reported that their industrial production jumped 16% and the Chinese Government seems to be signaling a willingness to appreciate their currency.  This seems to be very generous of the Chinese as an appreciation of their currency means that the trillion dollar plus they are holding of the dollar is worth relatively less, but it is just good business.

It seems the Chinese have finally realized it is not all about building foreign reserves and holding dollars, but that if they have all that dollar money tied up there, it is not flowing around over here.  By appreciating the yuan and making U.S. products cheaper in China, we can export more which creates jobs here.  This causes dollars to flow back to the United States strengthening the dollar itself, jobs are created and the greatest consumers of Chinese goods get back to work.  It is called ‘international trade’ as trade means back and forth, and the imbalance that was dollars heading there and goods here is unsustainable.  Sooner or later the correcting mechanism of currency valuation is supposed to kick in and shift the flow of goods so that imbalances are corrected.  The long time pegging of the yuan to the dollar has distorted the trade balance, sucking our jobs and dollars to China.  Good business, long term sustainable business, means it is time to reverse this flow.  No good businessman puts his customers out of business and the Chinese are starting to recognize this.

Thursday saw a settlement between Intel Corp. (NSDQ: INTC) and Advanced Micro Devices (NYSE: AMD) bury the legal hatchet and strike up a cross-licensing deal.  This gives AMD $1.25 billion to lighten their debt load and might get regulators off Intel’s back.  Wal-Mart Stores Inc. (NYSE: WMT) posted strong earnings but warned about the purchasing patterns they see with their customers in front of the holiday buying season.

Friday was a day all about gold and retail, with two IPOs (Dollar General and Rue 21) and earnings beats posted by J.C. Penney (NYSE: JCP) and Abercrombie & Fitch (NYSE: ANF).  New York Spot Gold traded a record $1,120.30 an ounce as the dollar traded off its intra-week spike high.  Merrill Lynch upped their estimates for copper for 2010 and 2011, making the mining sector, especially the gold miners with significant copper operations, very attractive.

On Thursday after the close Walt Disney Co. (NYSE: DIS), a Dow Jones Industrial component, posted 46 cents a share which was a surprising jump in quarterly profit of 18%.  This performance pushed Disney to a 2009 high with the week closing out at 2009 highs for the indexes and many other stocks.

The index numbers are looking a lot healthier with the Dow Jones Industrial Average 2.7% above five digit 10,000 and the S&P 500 in shouting distance of 1,100.  A solid week next weak could see the Nasdaq 100 pushing 2,000 as the tech market continues its strong march higher.

For those holding gold and other commodities, the dollar weakness and the carry trade are supercharging returns.  As market players, Fed Presidents, politicians and central bankers argue about economic policy and whether or not Fed Chairman Bernanke should raise rates, the numbers in peoples stock accounts are going up.  The inflation boogeyman is hiding on the horizon somewhere and I leave you with this last link to comments by legendary investor Jim Rogers.

Enjoy your weekend.

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