Wall Street Wrap

Big Pharma Strong, Google vs. China?

By Robert Perrego, at 5:31 pm on January 13th, 2010

Merck & Co. (NYSE: MRK) was upgraded on a strong drug pipeline by Credit Suisse and the stock responded by running up 3.67% (+$1.38, $38.93) to close at its highest level in 20 months.  During a day that saw “Wall Street CEOs” grilled by the Financial Crisis Inquiry Commission (FCIC), stocks staged a rally that carried the Dow Jones Industrial Average to new highs not seen since early October of 2008.  While the market was focused on the big news about the banks and Google’s China conflict, Big Pharma staged a stealth rally which carried not only Merck, but Johnson & Johnson (NYSE: JNJ) and Pfizer Inc. (NYSE: PFE) to new closing highs.  All three of these companies are Dow Jones components and J&J and Pfizer are the two largest pharmaceutical companies by market capitalization traded in the United States.  J&J closed up 41 cents at $64.97 (+0.63%) and Pfizer added 44 cents to $19.21 (+2.34%).

The Dow Jones Industrial Average rose 53.51 points (+0.50%, 10,680.77) with 22 of 30 companies positive for the day.  Two tech components of the DJIA, Cisco Systems Inc. (NSDQ: CSCO) and Intel Corp. (NSDQ: INTC), did their part gaining 1.81% and 1.70% respectively.  The strongest major index on the day was the Nasdaq 100, which gained 24.34 points (+1.30%, 1,886.13) and the S&P 500 rose 9.46 points (+0.86%, 1145.68)

Google Inc. (NSDQ: GOOG) is considering pulling out of China after getting Gmail accounts of human rights activists hacked.  Google said the hacks were very sophisticated and may have even led to the theft of some company proprietary technology.  A distant second in the search market to Baidu.com in China, Google has feuded with the Chinese Government over censorship and the privacy of their data and the data of their users for some time now, and this may be the last straw.  The big question is whether or not Google is bluffing and will they actually leave the largest consumer market on the planet that also has the hottest economy right now?  Walking away from 25% of the world’s population is never an easy thing to do, no matter how good your reasons are.  Baidu, Inc. (NSDQ: BIDU) jumped $52.99 (+13.71%, $439.48) on the news while Google dropped $3.39 (-0.57%, $587.09)

Oil dropped to under $80 a barrel on warmer weather as Nymex crude lost $1.16 to $79.63.  Gold opened up a few dollars after yesterday’s slide resulting from China raising their interbank interest rates and then started trading lower.  By lunch the shiny yellow metal had formed an intra-day double bottom and New York spot gold trended higher for the rest of the day finishing higher by $9.80 an ounce (+0.87%, $1,137.60, 4:54 p.m.)

The Fed beige Book was released at 2 p.m. and provided some upward momentum for stocks as it stated that 10 of 12 Fed regional districts reported economic conditions are improving.  The growth is slow with pockets of weakness and concern about consumer spending and credit.  Credit quality is deteriorating and loan demand is dropping as economists worry about a double-dip recession.  Current debate is how well the economy will do on its own, once the governmental stimulus ’sugar-high’ is over.

Just dumping stimulus money into an economy does not mean a recovery as stimulus spent wisely is an investment with returns, while pork stimulus or non-investment spending does not spur job creation and the positive effects fade with time.  This is very similar to the old proverb; “Give a man a fish he eats for a day, teach a man to fish he eats for a lifetime.”  Give the economy wasteful stimulus spending and we have a bounce in the market and a double-dip recession, spend those trillions wisely and hopefully we get a full blown recovery.

Tomorrow we get the Retail Sales (+0.4%, +0.2%) and Jobless Claims (437K) numbers at 8:30 a.m. and then Business Inventories (+0.2%) at 10 a.m.

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News

China Tightens, Alcoa Light on Earnings and The Market Drops

By Robert Perrego, at 4:33 pm on January 12th, 2010

China inched up their interbank rates for the second time this week and increased bank reserve requirements in order to control what more and more people are seeing as a real estate bubble.  Last week, hedge fund billionaire Jim Chanos hit CNBC saying a huge bubble was forming in China that would make the Dubai crisis look 1000 times smaller.  Of course there were other voices, notably hedge fund legend Jim Rogers, saying Chanos was wrong.  The actions by the Chinese Government to slow the economy down caused investors to think that maybe there is something to what Chanos had to say, driving the markets down as they lightened up on equities.  Last night Alcoa Inc. (NYSE: AA) missed their 6 cents estimate reporting a 1 cent per share profit AFTER charges.

I love it when a company says “well, we made a penny a share, and we know that’s less than the six cents we were supposed to make, but if you take out these costs we made more, we made seven!”  Yeah right, and if you take out all your costs you can always say you made more money, but Wall Street was not hearing it from Alcoa’s management as they hit the stock for 11.06% today (-$1.93, $15.52).

The Dow Jones Industrial Average gapped down on the open and recovered through the early morning only to sell off at lunchtime.  The bulls held tough as the decline was halted and the afternoon brought a small rally as the DJIA closed down only 36.73 points (-0.34%, 10,627.26) which basically just took back most of the points gained yesterday.

The major indexes have all been marking new 52 week highs this year, with small moves upwards almost every day.  The bears tried to push the market down today and succeeded only slightly, with the bounce-back in the afternoon and the buying on the close being testament to the power of the bulls.  The S&P 500 dropped 10.76 points (-0.93%, 1,136.22) and the tech heavy Nasdaq 100 took the biggest hit, losing 24.45 points (-1.29%, 1,861.79)

Forecasts for mild weather and the Chinese tightening caused oil to pull back as Nymex crude dropped $1.91 a barrel (-2.31%, $80.61, 4:21 p.m.).  The dollar was flat on the day after dropping early but rebounded in the afternoon.  A swift sell off in gold started at about 12:30 p.m., accelerated at 12:55 and was attributed to the move by the Chinese.  New York spot gold lost $23.90 an ounce (-2.08%, $1,126.80, 4:31 p.m.) with $10 of this drop happening in under 5 minutes.

The PowerShares DB US Dollar ETF (NYSE: UUP) was looking very weak in the morning and traded as low as $22.63 before rebounding to close where it opened at $22.72.  The technical picture of UUP was looking weak as yesterday it closed below its 50 day exponential moving average, and early today it looked as if it was heading lower.  The rebound and close at $22.72 leaves it slightly below the 50 EMA which is at $22.75, but that is close enough to be called holding the average for now.  A close below today’s low ($22.63) will signal further weakness, while regaining the 50 day will be a bullish sign and could establish a second major bottom higher than that of December 1, 2009.  Should the dollar hold here and head upwards again, these two bottoms will mark an uptrend line that supports the case that December may have been the low for the dollar for some time to come.

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Wall Street Wrap

Welcome to The 2010 Stock Market

By Robert Perrego, at 4:46 pm on January 4th, 2010

Federal Reserve Chairman Ben Bernanke did some number crunching and determined as far as the blame for the housing bubble goes – ‘wasn’t me’.  Ben went on to explain that it was not The Fed’s fault the housing market bubbled up and popped, and that low interest rates only contributed fractionally to the problem of soaring and then crashing housing prices.  These comments came in response to a lot of criticism as of late that has been leveled at Bernanke, and Former Fed Chairman Alan Greenspan, for leaving interest rates too low for too long.  This conclusion of Bernanke’s provides more leeway for leaving current rates at their current historic lows.  Traders heard this and sent the market higher today by buying just about everything in sight.

The Dow Jones Industrial Average gained 155.91 points (+1.49%, 10,583.96) on the first trading day of 2010, sending the Average to its highest level since October 3rd, 2008.  The S&P 500 tacked on 17.88 points (+1.60%, 1,132.97) and the Nasdaq 100 added 26.39 points (+1.41%, 1,886.70).

The ‘all clear’ sign from The Fed regarding interest rates was not the only good news the market received today as the 10 a.m. ISM Manufacturing Index beat its number (55.9 vs. 54.8) lifting expectations for a more rapid recovery in 2010.  Another piece of today’s puzzle is that China is also seeing strong growth in their manufacturing sector, and this news sent commodities prices higher.  Coal, natural gas, oil and anything used to heat a home was higher as cities around the world are getting hit by snow and cold weather from Seoul, with its heaviest snowfall in 70 years, to the coldest weather in Beijing in 40 years, to temperatures 30 degrees below normal in Iowa.

The positive manufacturing data caused funds to flow to riskier assets and out of the safe haven of the dollar dropping the U.S. dollar index future spot price by $0.39 (-0.50%, 77.48) which drove the New York Spot price of gold up by $23.70 an ounce (+2.16%, $1,120.10, 4:10 p.m.).

Nymex crude jumped above $80 a barrel for the first time in months as the cold weather and the weak dollar popped the per barrel price by $2.19 (+2.76%, 4:08 p.m.) to $81.55.

The chemical, materials and metals sectors topped the industry movers list as 2010 continued the commodities investing stampede.  With the fed funds rate at 0-0.25% one can only wonder how much longer before the word ‘bubble’ gets thrown around and then of course someone will want to blame The Fed.

No worries though, Bernanke, still awaiting his Senate confirmation for a second term as Fed Chairman, can always do another study and say ‘wasn’t me’, again.

Tomorrow we get Domestic Vehicle Sales which are expected to come in at 8.4 million.  Factory Orders are expected to increase by 0.4% and this number is released at 10 a.m. along with the Pending Home Sales Index.

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Wall Street Wrap

Russian into Gold, Bullard Latest to Speak

By Robert Perrego, at 4:47 pm on November 23rd, 2009

Yesterday in an interview with Dow Jones, St. Louis Federal Reserve President James Bullard stated that the U.S. central bank should continue purchasing mortgage backed securities longer than is currently planned.  Bullard, long regarded as a hawk on inflation, becomes a voting member of the FOMC next year and his comments sent the dollar plummeting and stock futures soaring.  Then at 10 a.m., the Existing Home Sales report was released and easily beat expectations (6.10 million vs. 5.70).  This unexpected beat in the weakest sector of the economy further boosted buying enthusiasm, powering the Dow Jones Industrial Average to trade its day high of 10,495.61 at 10:05 a.m.

The Dow Jones Industrial Average added 123.79 points (+1.28%, 10,450.95) while the S&P 500 rose further up 14.86 points (+1.36%, 1,106.24).  The tech heavy Nasdaq 100 was the percentage winner, jumping 28.55 points (+1.61%, 1,792.94)

This dollar plunge caused the carry trade cowboys to start buying everything, most importantly commodities.  Here is a simple example of how the carry trade works for these guys; a cowboy has a million share short position (44,563 shares) in the PowerShares DB US Dollar Index (NYSE: UUP) and the pre-market shows it trading down 20 cents.  On the market open the cowboy makes $8,912 on the 20 cent drop and he now takes that money and buys stocks, so up goes the market.  The price of gold goes up through this same mechanism and also because gold is traded in dollars and regarded as a currency, so a weaker dollar means more of them to buy gold.

The Dollar ETF (NYSE: UUP) dropped 0.75% today with the other widely watched dollar index, the “Dixie” (.DXY) dropping 0.65%.  The longer running DXY is at 75.12 with a 52 week low of 74.68.  Analysts and traders are watching any breach of the 75 level, and then possible new yearly lows below 74.68, as sell signals.

New York Spot Gold traded a new all time high price of $1,174.60, up $23.70 an ounce but settled back to $1,164.80 (+1.21%, +13.90) at 4:20 p.m.  Of the major gold companies by market cap, Agnico-Eagle Mines Ltd. (NYSE: AEM) gained the most, up 3.58% (+$2.18, $62.99) with IAMGOLD Corp (NYSE: IAG) placing second, up 3.43% (+$0.65, $19.58)

Russia’s central bank stated that they had increased their reserves of gold 18.9% since the beginning of the year.  This brings the share of international reserves that Russia holds in gold to 4.7% from 3.4%.  Each week the list of central banks known to be buying gold gets longer.  Sparked by the 200 tonne purchase by India, other central banks have released news or made open market purchases that has shown that the decades of selling by governments is over, and that now they are buyers.  Mauritania bought two tons of gold, Russian reserves are up, China has long been known to be slowly adding to their gold reserves and even openly encourages their citizens to do so.  As the Fed Presidents keep coming out and telling us that interest rates are not going anywhere anytime soon, this gets the cowboys in on the gold buying game too.

Nymex crude traded in a range from $77.15 a barrel to $79.92.  Oil gapped up early but sold off steadily all day finally trading $77.68 at 4:21 p.m.

Tomorrow in our Thanksgiving shortened trading week, we get the GDP report (2.8% expected) and Corporate Profits at 8:30 a.m.  At 8:55 a.m. the Redbook report is released followed by the S&P Case-Shiller home price index.  Consumer Confidence (47.0) is out at 10 a.m.

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Week on Wall Street

Gold Moves Higher, Tech Dips

By Robert Perrego, at 10:44 am on November 21st, 2009

Last week saw gold trade another all time high while the overall market inched higher.  The tech sector, as represented by the Nasdaq 100, performed the worst with a weak day on Thursday accounting for most of the loss.  A downgrade of eight stocks in the semiconductor industry, which affected $126 billion in market cap, caused leader Intel Corp. (NSDQ: INTC) to lose over 4%.  The downgrade came on a day that saw the Mortgage Bankers Association report that 14.4% of all homes with a mortgage were either at least one month delinquent on their mortgage payments or in foreclosure, an all time high.

The Dow Jones industrial Average gained 0.46% this week while the S&P 500 lost 0.19%.  The Nasdaq 100 moved the most, but in the wrong direction, slipping 1.35%.  Gold continued its march higher with a 2.9% gain for the week and an all time high close on Friday.

The week started with Fed Chairman Ben Bernanke speaking to the Economic Club of New York.  The dollar peaked this year as the stock market bottomed in March, but has been dropping steadily ever since.  Bernanke controls short term interest rates and this interest rate has a lot to do with the strength of the dollar as denominated in other currencies.  The Fed is in a tight spot here as unemployment is above 10% and if you have noticed an ‘economic recovery’ you are one of the few.  The stock market has rebounded enough to be put in the same sentence as ‘bubble‘, and GDP stopped dropping like a stone, but for most the country times are tough.  The dollar is inherently political too.  If Bernanke defended the dollar by raising rates with the 2010 elections a year out, any negative effect this could have on the ‘economic recovery’ might get him fired.

Bernanke gave the all clear signal to people shorting the dollar, stating that interest rates were to remain low for the foreseeable future.  The dovish interest rate stance Bernanke gave fired up the bulls and they started shorting the dollar and buying stocks.  The Dow Jones rose 136 points and the market broke out to new 2009 highs.

Tuesday and Wednesday saw little movement in the market indexes as San Francisco Fed President Janet Yellen commented to her audience in Hong Kong about whether or not The Fed should get involved with the financial markets.  Obama’s visit to China, and his pledge to ask that the yuan be appreciated, centers on the dollar again.  There are more than a few Chinese officials that are blaming the very low interest rates here in the U.S. with creating bubbles in real estate and the market IN CHINA!

On Wednesday the Mortgage Bankers Association came knocking with their first set of bad numbers.  Purchase Applications came in below expectations as no houses being sold means no mortgages applied for.  New York Spot Gold traded an all time high of $1,153.90 an ounce.

Before the open on Thursday, Merrill Lynch downgraded the semiconductor sector and the Mortgage Bankers were back with that huge 14.4% number.  The market plunged off the open and by 11 a.m. the Dow Jones Industrial Average was trading 10,256, down over 150 points.  The market crept back and with a spike up at the end of the trading day losses were cut to less than 100 points.  Microsoft came out with an update on Windows 7, stating that sales were at a record pace.  Then something strange happened… on Thursday the dollar rose AND so did gold.

Thursday after the close Dell Inc. (NSDQ: DELL) reported weak earnings.  This added more selling  pressure to the tech sector after Thursday’s semiconductor rout and Friday opened with a gap down in the market.  The market traded lower until about 11 a.m. but then trended upwards for the rest of the day.  By the close of the day the Dow Jones Industrial Index had pared its loss to 14 points .  The dollar rose again on Friday and the PowerShares DB US Dollar Index (NYSE: UUP) gained 0.54% on the week.

This gave gold a 2.9% gain on the week and the dollar tacked on 0.54%.  For the most part, the dollar and gold are inversely related as gold is traded in dollars.  The dollar carry trade has linked gold to the market as the carry trade cowboys are shorting the dollar to buy the market, and to buy gold.  These days if the market is up so is gold and if the market is up the dollar is down.

This week the dollar was up, gold was up and the Dow Jones Industrial Average was up.  The broader S&P 500 was down slightly so the inverse dollar-market relationship held.  Gold moved higher on two days that the dollar moved higher.  Strange things like this can happen when you reach an all time high as it sometimes seems all everyone says is ‘gold, gold, gold’.  While a mania might be building around gold and one of the other things you hear with gold is ‘bubble’ bubble, bubble’, the fact that central bankers from Russia to Mauritania to Chile are buyers tells me all I need to know.  Gold is going higher.

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