Wall Street Wrap

Dollar Up, Everything Else Down

By Robert Perrego, at 5:05 pm on December 17th, 2009

Standard and Poor’s downgraded Greece’s credit rating to BBB- causing investors to flee to the safety of the dollar and dump their riskier assets.  Unfortunately, the riskier assets are stocks and commodities, two of the asset classes that have seen the biggest bounces since the March market bottom.  All year as the dollar has declined after the Fed lowered interest rates to near zero, market players have been shorting the dollar and using the proceeds to buy stocks and commodities.  This carry trade results in the buying of stocks and commodities which pushed them higher, while the dollar goes lower under the pressure of all the shorting.  The ticking time bomb here is that once you get a whole lot of shorts in the same trade, when it reverses, it does so quickly as everyone runs to cover their shorts and to sell the longs they bought with the short proceeds.

The PowerShares DB US Dollar Index (NYSE: UUP) gained 1.05% today and is up 1.68% over the last four days.  As this run-up in the dollar occurred, the Dow Jones Industrial Average has lost 1.83% and the SPDR Gold Shares (NYSE: GLD) ETF has lost 2.63%.  One of the biggest gold mining companies on the planet, Agnico Eagle Mines Ltd. (NYSE: AEM) is down 11.6% as the movement of the mining companies themselves are usually much larger than their underlying commodity.

Stocks did not fare much better than commodities as the Dow Jones Industrial Average lost 1.27% today (-132.86, 10,308.26) and the broader S&P 500 dropped 1.18% (-13.10, 1,096.08).  The tech heavy Nasdaq 100 lost 1.25% (-22.55, 1,778.27).

Citigroup Inc. (NYSE: C) sold 5.4 billion shares yesterday at $3.15 apiece in order to raise money to exit the TARP program.  The United States Treasury, holder of one-third of Citibank’s shares prior to this offering, decided not to sell any of their shares and the stock fell 25 cents to $3.20 a share.  The Government bought in at $3.25, and assuming they are not trying to make a profit and break even (have you seen the U.S. budget lately, if these guys do anything for a profit it is the best kept secret in the world) the stock now has a lid on it at $3.25.  Citigroup announced that the Treasury would not sell any stock for 90 days in order to clear the perception of that these shares are out there hanging over the stock, but don’t be fooled, they are there.

FedEx Corp. (NYSE: FDX) reported their quarterly results, which are closely followed as a bell-weather on economic activity, and posted $1.10 a share vs. expectations of $1.05.  Year-over-year earnings dropped from $1.58 a share to $1.10 as lower surcharges and lower prices more than offset an increase in number of packages shipped.  The stock dropped $5.48 (-6.09%, $84.47) but also brought trading partner United Parcel Service (-1.30%) and the Dow Jones Transportation Index (-1.19%) lower with it.

New York Spot Gold dropped $40.10 an ounce to $1,097.40 (-3.53%, 4:53) on dollar strength but oil held tough gaining 2 cents a barrel to $72.68.

Tomorrow there are no economic releases as it is a quadruple witching Friday.  The options expirations can cause a decent amount of volatility so economic reports are not released on these days so as not to have an outlying number rocket the market in one direction or other.

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Wall Street Wrap

Exxon Gets Gas, Dubai World Bailed Out, Citi Escapes

By Robert Perrego, at 4:30 pm on December 14th, 2009

The big news the market woke up to this morning was that Exxon Mobil Corp. (NYSE: XOM) was shelling (not the other oil company) out $41 billion for XTO Energy (NYSE: XTO).  XTO is more deeply involved in natural gas than oil and Exxon is more concentrated in oil than natural gas, so the combination makes the combined company more diversified.  Currently, the ratio in prices of oil to natural gas is at a historically high levels and by looking at the buyout through this lens, the deal makes even more sense.  ExxonMobil is shorting oil (selling their shares) and  going long natural gas (buying XTO) in order to bet that the very high ratio reverts to the norm over the long term.  Exxon is a hedge fund now?  No, just a company that knows a LOT about energy.  Another factor in the buyout may be the cap and trade legislation, possible carbon taxes and the fact that natural gas is much cleaner burning fuel than coal or oil.

News out of the Middle East had a positive effect on the market as Abu Dhabi pulled a 180 and announced a $10 billion bailout of Dubai World.  After saying they were not going to stand behind Nakheel a few weeks ago, the reaction to this news was possibly reason enough to reverse course as UAE stocks took off on the news.  One market that really likes this bailout news is the gold market, as the dollar dropped today as investors nerves were soothed by the bailout and the appetite for risk increased.

Even with such a major deal being done the Dow Jones Industrial Average was only up 29.55 points (+0.28%, 10,501.05) and the S&P 500 gained 7.70 points (+0.69%, 1,114.11).  The Nasdaq 100 outperformed the other indexes adding 17.03 points (+0.95%, 1,809.09).

I am seeing a few chart indicators that the pullback in gold may be just about over, opening a window for a favorable entry point into the gold trade.  Gold trades inverse of the dollar and on the day Dubai World announced their debt problems and gold dropped $46 an ounce the PowerShares DB US Dollar Index (NYSE: UUP) traded their all time high volume of 12.9 million shares.  The dollar shot up, gold got hit and it looked like volume was marking the bottom for the dollar.  Last Friday the UUP traded 15.2 million shares on the peak of their run up and traded lower today.  The SPDR Gold Shares (NYSE: GLD) has pulled back to trade just 30 cents above its 50 day exponential moving average, which represents a support level, and traded higher today.  The stochastic oscillator for the GLD has fallen, and while it has not turned upwards yet, we are approaching an area where it is likely to.

The GLD closed today at $110.24 (+0.84%, +$0.92) and watching for a breakout above $111 before entering may be a safer trade.  If the GLD trades below where the 50 EMA is ($108.44) get out and take a $2.56 loss (-2.3%) while the upside to this trade, if you hold just back to its all-time high for the GLD, is $8.54 or 7.7%.  Many traders regard a 3-to-1 ratio of a trade’s success to be what they look for.  (7.7 / 2.3 = 3.35).

New York Spot Gold gained $8.90 an ounce (+0.80%, $1,124.00, 4:10 p.m.) as the dollar dropped today.  The UUP lost 5 cents (-0.22%, $22.63) as the Dubai World news eased investor fears and they moved money to riskier currencies and in effect, put the ‘risk trade’ back on again.  The big question is whether or not this Dubai bailout will embolden the carry trade cowboys enough to bottom gold out here and cause the dollar bounce to be short lived.

Citigroup Inc. (NYSE: C) got clearance from the Fed to repay their TARP loan causing the shares to drop 6.32% (-$0.25, $3.70).  Citigroup is planning a huge secondary to raise the money and this could dilute Citigroup stock by as much as 20%.  Looks like Uncle Sam is going to come out of this deal with a tidy little profit as well, as analysts estimate a $13 billion profit.  This of course is if you ignore the hundreds of billions of dollars of toxic paper the Fed bought off Citibank and the Citigroup debt that got U.S. Government guarantees.  Then again, those guarantees did not do Fannie and Freddie’s bondholders a whole lot of good.

Nymex crude dropped 21 cents (-0.30%, $69.66, 4:10 p.m.), even with the big oil patch deal.  This drop in oil may be what kept the market from rising on the XTO announcement, as the dropping commodity worked against the merger news in the oil stocks.  The Nasdaq 100 did have a strong day and there are few (if any) oil stocks in that index.

The big economic event this week is a Fed meeting that starts tomorrow with the announcement on interest rates scheduled for Wednesday at 2:15 p.m.  The view on the Street is that with this time of year being a thin trading time, the Fed will not alter their statement at all, and no one expects a hike in interest rates.

Friday is a quadruple witching day for options.

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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

Citigroup Throwing off the TARP, Gold Flips Back and Forth All Day

By Robert Perrego, at 5:03 pm on December 9th, 2009

Citigroup Inc. (NYSE: C), the bank that couldn’t punch its way out of a paper bag nine months ago, is actually going to pay back the TARP program.  After seeing Bank of America Corp. (NYSE: BAC) successfully issue $19.3 billion worth of stock to get Uncle Sam off their backs, Citigroup figured they can do the same.  There are still plenty of banking analysts that think the bank stocks are overpriced and some even think they are still zombie banks – as in the walking dead.  So what would you do if your stock was overvalued?  Sell it, of course! A few talking head analysts on TV today said that this secondary would dilute the Citigroup stock by close to 20%.  These banks want to get out from under the TARP as Vito the loan shark and his buddies (Tim Geithner and Ken Feinberg) keeps putting the screws to them and telling them how to run their business.  No big bonuses.  You can only pay that person this much.  Wipe your shoes on the mat and brush your teeth before you go to bed.  Wells Fargo & Co. (NYSE: WFC) also has plans in motion to get that TARP off their back but first they have a $5 billion debt to pay off to Prudential Financial Inc. (NYSE: PRU).

Speaking of the TARP, Treasury Secretary Tim Geithner has extended it a year.  Now the money that is being repaid can be loaned out again or better yet – given away!  Obama would like to recycle this money as no politician likes to see an election cycle approach when there are a lot of people out of work.  Let’s make sure we don’t just pay back some of those bonds we issued to float this monstrous program, that would only be what we said we would do.  I am waiting for all the cool new programs names all giddy right now.  After the brilliantly named cash-for-clunkers, that really had no net effect but to pull sales forward and waste government money, I am looking forward to green-for-golfers and bucks-for-boats.  I bet we are going to get money-for-mortgages though.

The stock market traded inverse of the dollar today as everyone seems very sensitive to the effect the carry trade cowboys have.  The dollar Index Future spot price (DXY) peaked and started trading off at about 2 p.m., and at the same time the Dow Jones Industrial Average made its whole move for the day.  The DJIA finished up 51.08 points (+0.49%, 10,337.05) while the S&P 500 added 4.01 points (+0.36%, 1,095.95) and the Nasdaq climbed 16.97 points (+0.95%, 1,789.70).  For the last few days the Nasdaq has been outperforming the other two major averages on the upside and downside.

Gold was all over the place today.  New York Spot Gold was up $16 in the pre-market, opened up about $10, traded up a bit and then at 11 a.m., got sold off for well over 3 straight hours.  Spot was down over $10 an ounce when the dollar reversed and, at the same time the DJIA and the other stock indexes started to climb, gold rallied and NY Spot was last seen trading up 30 cents an ounce ($1,128.60, 4:42 p.m.).

Nymex crude got hit again.  Today the market took the barrel down $1.95 and was last seen trading $70.69 (-2.68%, 4:40 p.m.).

Tomorrow we get the biggest economic number of the week, the Jobless Claims number.  460,000 are expected with the range running from 450 to 500.  After that strong number on Friday, another big beat of the expected number may really fire the dollar up, while a weak number may make last Friday look like a one-time event and possibly even a bad number.  This release may be carrying a heavier importance than ever before as how goes the dollar, so (inversely) goes the stock market and commodities.

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Wall Street Wrap

Wall Street Bounces Back, A Little

By Robert Perrego, at 5:09 pm on November 30th, 2009

On Friday the markets retreated on news that Dubai World, a government owned investment holding company, was not going to be able to meet payments on their $59 billion in debt.  The company is now asking for a restructuring of $26 billion of that debt.  The bears came out of the woodwork screaming for a market collapse and the Dow Jones Industrial Average dropped 154 points.  Today, world markets firmed as clearer heads prevailed.  First, Bernie Madoff alone beat these guys by $1 billion (U.S. number one again!) and secondly, Dubai is sitting on 80 billion barrels of oil.  Why the markets got scared on this one is beyond me as all those oil dollars should be able to handle this problem without breaking a sweat.

The one question that could be worrying everyone is that there are other cockroaches about to see the light of day and where they will come from and when they are discovered is unknown.  The ripple effects of this problem are not completely known, but Citigroup Inc. (NYSE: C) and the Royal Bank of Scotland have been mentioned as the hardest hit in the U.S. and U.K. respectively.

The Dow Jones Industrial Average regained about a fifth of Friday’s loss or 34.92 points (+0.33%, 10,344.84) and the S&P 500 gained 4.14 points (+0.37%, 1,095.63).  The tech heavy Nasdaq 100 was up 1.97 points (+0.11%, 1,767.43).

Other big news today was all about Black Friday and Cyber Monday.  Depending on the web site or news source you read, sales were up from Black Friday of 2008 or down.  Who to believe?  ShopperTrak had a report that sales were up 0.5 percent and then the National Retail Federation said sales were down 8 percent.  Are these the same guys that gave us “jobs saved and created?”

The one winner everyone seems to agree on is Amazon.com Inc. (NSDQ: AMZN) as the stock closed at a 52 week high at $135.91 today (+$4.17, +3.16%).  Amazon was the most visited site with Wal-Mart pulling a close second.  Yes, that is Wal-Mart online.  While Black Friday is the ‘Super Bowl’ for the brick and mortar retailers, today is supposed to be the day for online retailers.  I have received about 50 Cyber Monday spam e-mails already, and if your Internet is slow tonight it might be your neighbor sucking up bandwidth buying that robot hamster.

New York Spot Gold gapped down on the open, regained ground as the day went on and was up $2.10 an ounce ($1,178.80, +0.18%) at 4:31 p.m.  The SPDR Gold Trust (NYSE: GLD) traded as low as $114.27 before buying pushed the ETF up to close at $115.64 (+$0.58, +0.50%).  Gold gained 13% in November and today closes one of the best months the shiny yellow stuff has seen in 10 years.

Oil spiked on reports that five British sailors aboard a racing yacht had been seized by the Iranian Navy and on a weaker dollar.  I guess these guys could sail fast but navigation was not their strong point as they supposedly wandered into Iranian waters, which I would assume no one does on purpose.  Nymex crude was up $1.23 a barrel (+1.62%, 4:29 p.m.) at $77.26 after trading as high as $78.00 on the news.

We have a full week of trading and on Friday the Employment Situation number is looming.  Expectations are that the current 10.2% unemployment level will either stay flat or even decrease.  While the weekly Jobless Claims numbers have been coming down slowly, I don’t think a decrease is coming as the only stories I see about jobs are about companies cutting more jobs.  Tomorrow we get Motor Vehicle Sales (7.75 million expected) and at 10 a.m. we get ISM Manufacturing Index (55.0) and Construction Spending (-0.4%).  Wednesday brings the ADP Employment Report at 8:15 a.m. with the follow up number for that being Thursday morning’s Jobless Claims (485k) at 8:30 a.m.  Also on Thursday we get the Productivity and Costs report (8.6%, -4.2%) at 8:30 a.m. and the ISM Non-Manufacturing Index (52.0) at a.m.  Friday is the big unemployment number and Factory Orders (0.2%) at 10 a.m.

Fed Governors are going to be speaking with Philly Fed President Charles Plosser on Tuesday at 12:20 p.m. and then again Friday at 10 a.m..  Chairman Bernanke appears before the Senate Banking Committee for reappointment on Thursday, and I am sure CNBC will be airing some of the very entertaining and witty verbal exchanges.  My favorite part is when Senator Blowhard makes a 15 minute speech prior to asking a 4 second question and then does not want to wait for a long detailed answer as he will claim he is running out of time.  St. Louis Fed President James Bullard speaks at 1:15 p.m.

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