Dollar Up, Everything Else Down
By Robert Perrego, at 5:05 pm on December 17th, 2009Standard 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.
