News

Tech Strong, Gold Bounces Back

By Robert Perrego, at 5:09 pm on December 18th, 2009

Oracle Corp. (NSDQ: ORCL) reported after the close yesterday, that earnings rose year-over-year to $1.46 billion or 29 cents a share vs. last years 25 cents a share.  When exchange rate effects were backed out of earnings and revenue, both were flat with last years results, but at least they were not falling.  This announcement powered the stock higher by $1.46 (+6.38%, $24.34) as most companies, tech and non-tech, have seen either their earnings, revenue, or both decline.  Research in Motion Ltd. (NSDQ: RIMM) jumped 10.30% (+$6.54, $70.00) on their earnings announcement as revenues increased 11% while Palm Inc. (NSDQ: PALM) reported a decline of revenues of 59.2%.

Besides the earnings driven technology sector and a bounce back in commodities, the market was flat with the Dow Jones Industrial Average gaining 20 points (+0.19%, 10,328.89), the S&P 500 up 6.31 points (+0.57%, 1,102.47).  Looking at the intra-day charts of both these indexes shows you that the Dow gained 45 points and the S&P 500 rose 4 points, all in the last 20 minutes of trading.  The Nasdaq 100 was up over 29 points (+1.63%, 1,807.32) and strong all day.

Gold and commodities got hit hard yesterday on a strong dollar and today they bounced back while the dollar stayed flat.  New York Spot Gold was down $40+ yesterday but recouped $14.70 an ounce today to $1,111.80 (+1.34%, 4:18 p.m.).  This morning, oil jumped almost $2 a barrel to $74.33 on news that Iranian soldiers took over an Iraqi oil well.  By 4:12 p.m. this rise had traded down to $73.18 (+$0.53, +0.73%) as it seems this  is not an uncommon occurrence.

The carry trade and the recent strength in the dollar has caused much concern that the stock market would get hit if the dollar started to rise.  Over the past few years, ETF’s have made it possible for the common investor to diversify into commodities.  Let’s take a look at what kind of effect this week’s strong dollar had on the stock market and select commodities;

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%

Looking at these numbers you can see that while the DJIA and the S&P 500 maintained their inverse relationship to the dollar, the tech heavy Nasdaq 100 is bucking the trend.  Also, it seems that the dollar strength did not translate into as much commodity weakness as you may have thought.  The worst performer of the above listed commodities is gold down 0.34% while the dollar strengthened over four times as much, up 1.45%.  Natural gas and oil crushed the dollar effect as natural gas actually rose seven times as fast as the dollar dropped and oil was up more than twice the drop.  Completing the fossil fuels sector, coal finished positive on the week and the strength of these three may be attributed to the cold weather sweeping North America.

In the Tracked.com’s ‘Strange-but-true-irony’ category it is freezing and snowing heavily in Copenhagen as politicians gather to discuss ‘global warming’ and Former Vermont Governor and consummate left-winger Howard Dean says he would not vote for the current health-care reform bill.  A little advice for the pro-global warming crowd; start holding your conferences in the desert in August as all the ones we keep seeing are during ice storms, blizzards and cold weather and this hardly makes for the press you want.  Advice for Howard Dean; run for office and win, then we just might care what you would vote for and then you could actually vote.

So up is down, down is up and who cares – the weekend is here.

Have a great weekend.

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Wall Street Wrap

Wall Street Wrap – The G20 puts Stocks and Commodities on Steroids

By Robert Perrego, at 5:09 pm on November 9th, 2009

On Saturday in London, finance ministers and central bankers from the world’s 20 largest economies agreed to keep the current coordinated stimulus measures in place until global economic conditions recover.  Here in the U.S., this means The Fed keeps the Fed Funds rate at near zero… as if they planned on raising them anyway.  This ‘all clear’ on the interest rate front sparked a rally in the stock market with the Dow Jones Industrial Average gaining 203.52 points on the day (+2.03%, 10,226.94) and closing at a new 2009 high.  American Express Co. (NYSE: AXP) led the charge in the Dow 30, up $1.84 (+4.94%, $39.05).

Last week after The Fed kept interest rates at 0-0.25%, their comments that the recovery was expected to be too weak to raise rates anytime soon caused a rally.  Now, with basically all the central banks agreeing to this course of action for the ‘forseeable future’, the rally took hold across the board in stocks.  This worldwide interest rate ‘all clear’ also caused the ‘carry trade cowboys’ to jump in with both boots and hit the dollar, dropping the buck to its lowest level in 15 months.  This drop in the dollar juiced commodities and the next thing you know everything is going up.

The Nasdaq 100 put in a 2009 high close, gaining 37.64 points (+2.17%, 1,768.40) while of the three, the S&P 500 is the only index that did not make a new 2009 high close, but still rose 23.78 points (+2.22%, 1,093.08).  Finance led the sector race gaining 3.48% with the consumer cyclical companies up 2.82%.

The commercial real estate market has been scheduled for execution by many a commentator on TV lately.  Today was a strong day for commercial real estate, with the iShares FTSE NAREIT Industrial/Office Corp Index (NYSE: FIO) gaining 5.48% (+$1.14, $21.94).

Gold topped $1,100 overseas before most alarm clocks even went off in New York.  New York Spot Gold traded as high as $1,110.60 an ounce before trading off to $1,103.20 (+0.57%, +$6.30, 4:12 p.m.).  The Spdr Gold ETF (NYSE: GLD) opened trading above its recent trend channel but traded off to close right at the top uptrend line, otherwise known as the ‘reaction or return line‘.

Nymex crude traded up $2.00 (+2.59%, $79.27, 4:12 p.m.) on the weak dollar as well as news that Hurricane Ida (downgraded to a tropical storm) is making landfall on U.S. gulf states.  Memories of Katrina and the resulting jump in oil and gas prices have traders a little hair triggered as far as Mother Nature in the Gulf of Mexico is concerned.

Coal led the commodity rally with the coal ETF (NYSE: KOL) up 4.82%.  Steel followed on at 4.12% (NYSE: SLX) with the gold miners ETF (NYSE: GDX) in third up 3.48%.  The copper ETF (NYSE: JJC) lagged the pack (+0.85) but finished just ahead of the agricultural ETF (NYSE: DBA) up 0.78%.

Looking forward on the Dow Jones Industrial chart, only one minor bottom resistance level at 10,365 is seen.  After 10,365, it looks like clear sailing up to 11,000 and with the latest pullback retrenching the stochastics, which are now bullish and pointing higher, it looks good for a rally into year end.

Radio Shack caught an upgrade from Credit Suisse and gained 14.26% (+2.53, $20.27) while retail was strong in front of the all important Christmas shopping season.  The S&P Retail Index was up 1.95% and closed at a 2009 high.

This looks like good news across the board, but consider that this is all happening on the back of very cheap money as the world’s central banks leave the liquidity spigot on full blast.  Many experts are already saying this is the inflation of the next bubble, something everyone so adamantly declared was a past pattern not to be continued.  Everyone likes it when the stock market goes up, but is abandoning the dollar and inflating the stock market the way to go with a jobless recovery underway?

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Wall Street Wrap

Wall Street Wrap – The Fed Stands Still, Gold Trades $1,099

By Robert Perrego, at 5:25 pm on November 4th, 2009

As widely expected, The Federal Reserve Open Market Committee maintained its target for the federal funds interest rate at 0 to 0.25% today stating that it “continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”  This caused the dollar, which had been selling off before the announcement, to drop even farther with the PowerShares DB US Dollar Bullish Fund (NYSE: UUP) dropping 0.88% on the day (-$0.20, $22.48) and propelling New York Spot Gold to trade as high as $1,099.  This maintenance of low interest rates caused a rally in the home builders with Pulte Homes Inc. (NYSE: PHM) +3.46%, Lennar Corp. (NYSE: LEN) +3.43% and D. R. Horton Inc. (NYSE: DHI) +3.12%, all gaining on continued low mortgage rates.

Click here to read the full FOMC Statement

The Dow Jones Industrial Average, which had been up all day and traded its highest level a half hour after the announcement at 9928, got sold off into the close dropping 113 points within the last hour of trading.  The Dow 30 closed up 30.23 points at 9,802.14 (+0.30%) with the S&P holding onto gain of 1.09 points (+0.10%, 1,046.50).  The Nasdaq 100 also barely managed to finish positive 1.47 points (+0.08%, 1,680.67).

With the low interest rates and the dollar getting hit left and right, the commodity space has been red hot.  Looking at various commodities and the dollar exchange traded fund, the vehicles the common investor can use to most easily invest in, we find the following returns for 2009 thus far;

  • Market Vectors Coal ETF (NYSE: KOL) +114.5%
  • iPath DJ AIG Copper ETN (NYSE: JJC) + 109.6%
  • United States Gasoline (NYSE: UGA) +88.8%
  • Market Vectors Steel ETF (NYSE: SLX) +79.6%
  • SPDR Gold ETF (NYSE: GLD) + 23.8%
  • United States Oil Fund (NYSE: USO) +22.8%
  • Dow Jones Industrial Average +11.7%
  • PowerShares DB MS Agriculture ETF (NYSE: DBA) +0.2%
  • PowerShares DB USD Dollar ETF (NYSE: UUP) -8.83%
  • Unites States Natural Gas (NYSE: UNG) -57.8%

The Dow Jones Industrial Average is included here as lately it has traded much like a commodity.  With the current U.S. interest rates so low, the dollar is being used to fund the carry trade and is shorted to provide funds to invest in other ‘risky’ assets (for more on this see my Wraps from 11/1, 10/31, 10/30).  This use of the dollar in the carry trade has established an inverse relationship between the dollar and the stock market, much like commodities.

Looking at these returns we can see that the good news is food is not seeing much inflation and if you heat your home with natural gas this may be a cheap winter.  The bad news is gasoline has almost doubled so you will have to stay home and eat in.

Much speculation has been running around the financial community about whether or not a commodity bubble is forming.  Just looking at absolute returns does not give enough information to define a bubble, as these different commodities are influenced not only by a diving dollar, but by things such as economic activity (coal, copper, steel, oil), inflation expectations and currency diversification needs (gold), consumer income and purchasing patterns (gasoline, food) and the simple supply of the commodity (natural gas).

I do not think we are into a commodity bubble as there have been a series of positive economic numbers out of China (remembering commodities are a global situation) which directly influences the demand for, and price of oil, copper, coal and steel.  The United States economy has also improved as evidenced by the 3.5% GDP report from last week.  Judging from the Fed’s statement today, interest rates will be kept very low for awhile in order to juice job creation and this will keep the dollar weak and the commodity run up will continue.  Also, the overall market; commodities, stocks and bonds, all dropped for a ways before the start of 2009 so rising from a lower starting point makes the run up percentage numbers look larger.  With the specter of a trillion dollar health care reform and cap and trade costs looming in the United States political future, along with the current budget deficit, I do not see the dollar strengthening appreciably anytime soon.  There longer term outlook for commodities remains positive.

Nymex crude rose 80 cents today (+1.01%, $80.18, 4:50 p.m.) regaining the $80 level.  Gold has been the market darling lately trading an all time high of $1,099 an ounce today and was last seen at $1,091.80 (+0.69%, 5:00 p.m.).  Yesterday’s move by the Reserve Bank of India of buying 200 tonnes of gold from the IMF shows the argument why gold may be nowhere near a top.  The inflation/deflation arguments about gold will mean nothing if the offshore assets denominated in dollars start to diversify into gold.  Of all the major currencies of the world gold has the smallest market by far.  Were Russia, China, Japan, India and the Middle East dollars to all diversify to just 5% of foreign reserves into gold, the price could top $2,000 easily.

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News

Wall Street Wrap – Goldman’s Trading Desks are on Fire!

By Robert Perrego, at 5:07 pm on October 15th, 2009

Goldman Sachs Group Inc. (NYSE: GS) reported earnings before the open and posted $5.45 a share in earnings on net income of $3.03 billion and revenues of $12.37 billion.  Expectations were for $4.24 and $11.02 billion.  Goldman crushed the earnings number by 28% on strong performances by fixed income, commodities and currency trading.  If you were to ask Goldman the questions oft heard on CNBC; “Should the government have stepped in and not let Lehman go bankrupt?” and “Should the government have saved Bear Stearns?”  their answer… NO WAY!

Goldman is the undisputed king of the trading world.  When the mortgage bond market was teetering on the edge of collapse, and then did collapse, where was Goldman?  Short.  When other financial firms were posting loss after loss after loss and taking asset write-downs, what was Goldman doing?  Making money.  Now that two of Goldman’s biggest competitors in bond and commodity trading are defunct, whats is Goldman doing?  Goldman is making money hand over fist!

Bear Stearns profitable trading operations were absorbed by JP Morgan and merged in with existing operations.  Lehman’s trading operations were simply dismantled.  Now, the inside spreads in the markets Lehman and Bear were active in are wider, leaving more profit for the existing players.  Besides the obvious loss of competition, what has characterized the third quarter?  The third quarter has seen gold rise 5.9%, steel up 18%, copper up 22%, oil up 6.5%, coal up 24% and the dollar down over 5%.  Not only are the spreads wider in the bond markets, but the commodity and currency markets are hot and active.

But even better, there is still fear in the markets.  People are afraid of losing their jobs all over Wall Street.  The government is sharpening the long knives and screaming about compensation.  A trader plays a ’strong hand’ when he can afford to lose.  A trader makes maximum money when he sticks to his convictions and rides the trade for all its worth.  When a trader is looking over their shoulder, worried about whether or not the firm has enough capital and hence worried about his trading line, worried about some bureaucrat making life difficult, worried about the P&L manager calling him, or otherwise distracted from anything but the trading, they are dead meat.  This ‘weak hand’ jumps out of winners too early, doubles down on losers and does not make huge profits.  Goldman was short the hot mess of a mortgage market, Goldman was long commodities, Goldman is bid low and offered high in the bond market.  Goldman is focused, liquid, lean, mean and killing it!  And, Goldman is trading against traders playing ‘weak hands’.

Citibank (NYSE: C) lost another $3.2 billion, caved in to the U.S. government and sold their most profitable trading unit, is selling divisions, downsizing, blah, blah blah…  they are a mess.

Goldman’s stock lost $3.65 today (-1.89%, $188.63) with today’s closing price up 28% since the start of the quarter, the same percentage as what their earnings beat was.  Goldy made $3.54 last quarter, so earnings increased 54% QoQ.

The Dow Jones Industrial Average gained 47.08 points (+0.47%, 10,062.94) and the S&P 500 was up 4.54 points (+0.41%, 1096.56) while the Nasdaq 100 dropped 0.901 points (-0.05%, 1753.36).  The energy sector was up 2.28% as oil broke above $75 and tech was the weakest sector down 0.34%.

Nymex crude added $2.40 a barrel (+3.19%, $77.55, 4:24 p.m.) as the charts showed a breaking of resistance at $75.  Today, the EIA Petroleum Report at 11:00 a.m., showed a giant 5.2 million barrel draw in gasoline stocks causing an immediate jump in oil prices.  It was off to the races for the rest of the day after that.

New York Spot Gold got clocked for $12.90 (-1.21%, $1,049.80, 4:45 p.m.) even though the CPI came in at the high end of estimates this morning (+o.2%).  This drop could be the beginning of a pullback to support at the $1,020 level, before a possible attack on $1,100.

The two major economic reports tomorrow are Industrial production at 9:15 a.m. (0.2%, 69.6%) and Consumer Sentiment  (74.0).

Major Earnings for tomorrow; (BAC, -0.07, before market open), (GE, 0.20, bmo), (GPC, 0.65, b,o), (HAL, 0.26), (MAT, 0.63, bmo) and (MTG, -1.62, bmo).

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News

Wall Street Wrap – Goldman upgrades the Big Banks, Dollar Down, Gold Up

By Robert Perrego, at 4:53 pm on October 5th, 2009

Goldman Sachs Group Inc. (NYSE: GS) upgraded Wells Fargo & Co. (NYSE: WFC) and Comerica Inc. (NYSE: CMA) to buy this morning and added Capital One Financial Corp. (NYSE: COF) to its conviction buy list, sparking a rally in the financial and banks and the market as a whole.  Not all banks are a go for Goldy as they are recommending people steer clear of the regional banks and buy the big banks on a valuation basis.  This bullish turn by Goldman comes right at the kick-off of Q3 earnings season, and the big question is whether or not top line revenue numbers will increase or if earnings will hold just by firing more people.  Capital One jumped 8.25%, Wells Fargo was up 6.88% and Comerica added 4.16%, while Goldman, which pretty much helped itself by upgrading the sector they are in, gained 3.81%.

Overall the Dow gained 112.08 points (+1.18%, 9599.75) with the S&P 500 the strongest index up 15.25 points (+1.48%, 1040.46) while the Nasdaq 100 brought up the rear adding 13.15 points (+0.79%, 1675.64).

The G7 finance ministers met in Istanbul and what was surprising is not what they said, but what they did not say.  Over the past few months everyone from the Chinese to the Russians to the IMF have called the dollar out on weakness, massive U.S. budgetary deficits and high debt levels.  The sudden silence about the dollar was deafening.

Looks like the finance ministers have decided to stop bringing up the dollar subject and hope no one notices it drop or pile on the short side of that trade.  All these world leaders and officials do is keep complaining about a weak dollar and all that does it make it weaker, and make dollar shorts a lot of money.  These financial super-brains may now have decided that the ‘ostrich’ approach will do better than the whining and complaining approach.  Complaining doesn’t seem to do any good when the Administration in the White House seems to do nothing but stay up late at night thinking up ways to spend even more dollars they do not have.

Strangely enough, our market rallies when the dollar drops as a massive game of ‘beggar thy neighbor’ is about to start in worldwide trade.  There is going to be a huge fight for customers worldwide and a cheaper dollar puts us back in the game.  This is how international finance and currency markets work to balance out problems like, say, the Chinese and Japanese having trillions and trillions of our dollars.  The dollar drops and they buy more stuff from us and we get the dollars back.  Then of course there is that one nasty problem with a weak dollar… commodity inflation!

New York Spot Gold was up $14.50 an ounce trading at $1,016.80 at 4:12 p.m (+1.45%).  Looking at the gold charts you see a breakout waiting to happen.  Looking at the PowerShares DB Dollar Bull ETF (NYSE: UUP) chart and you see weakness and the dollar rolling over after hitting resistance.  The dollar chart looks ready to break down. The dollar cracks, and it could this week, and gold is going to take out the all time highs in a flash.  Gold is 1.7% from its all time high while the dollar ETF is 3.4% from its all time low.  This means the dollar does not even have to make a new low in order for gold to take out the highs.  If the dollar does make a new low, look out.

Other commodities: Oil ETF (NYSE: USO) up 0.86%, copper ETF (NYSE: JJC) up 1.98%, steel ETF (NYSE: SLX) up 3.83%, natural gas ETF (NYSE: UNG) up 6.23%, coal ETF (NYSE: KOL) up 3.67%, agricultural ETF (NYSE: DBA) up 1.01%.

What will impact the market now?  Some bad economic numbers and job losses you say?  We got those all week last week and the market rallied today.  The market is getting numb, even to watching a couple hundred thousand jobs walk out the door every month.  The story will be in the dollar and the top line revenue numbers during this earnings season.  Alcoa, Inc. (NYSE: AA) is the first Dow component to report on Wednesday.  They are expected to lose 12 cents a share on revenues of $4.46 billion.  My guess is they miss both numbers.

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