News

Housing and Auto Data Send the Market Higher

By Robert Perrego, at 5:36 pm on February 2nd, 2010

Housing, financial and auto companies blazed the market path lower last year as the poster children for the economic nightmare that took the Dow Jones Industrial Average from its all time high of 14,198 to the low at 6,469.  Today, while Paul Volcker continued beating up on the banks, Ford Motor Co. (NYSE: F), General (Government) Motors and D.R. Horton Inc. (NYSE: DHI) released data giving the market optimism and also 117 points.  Ford reported their January sales increased 25% and GM was up 14% while Toyota and Chrysler dropped.  D. R. Horton actually posted a profit and the Pending Home Sales Index increased by a percentage point on a month-over-month basis, showing a flicker of strength in the housing sector.

The Dow Jones Industrial Average added 111.32 points (+1.09%, 10,296.85) with 28 of 30 companies finishing with gains while the S&P 500 rose 14.13 points (+1.30% ,1103.32).  The Nasdaq 100 lagged behind, gaining only 16.20 points or 0.92% (1,776.92)

Treasury Secretary Timothy Geithner defended the largest budget ever proposed in the history of the world, as Senators grilled him on President Obama’s new $3.8 trillion budget, fully loaded with a $1.56 trillion deficit.  At the same time, Paul Volcker was defending legislation to limit proprietary trading by banks.  Somehow, someone got the idea that proprietary trading caused the credit crisis.  Back when professional proprietary equity trading was taking off (prop day-trading), it seemed every evil deed within 50 miles of Wall Street was blamed on ‘proprietary trading’, ‘fast money trading’ and ‘day traders.’  I was a prop trader for six years and from what I remember, the people that knew the least about trading always blamed trading, even when it had absolutely nothing to do with trading.  “Deja vu all over again.” (Yogi Berra 1960)

New York spot gold added another $8.30 an ounce (+0.75%, $1,113.90, 4:32 p.m.) after popping up $25 yesterday as the PowerShares DB US Dollar ETF (NYSE: UUP) looks like its recent rally is over.  The UUP lost 0.34% today as it closed below its 200 day exponential moving average and also broke below the uptrend line that has been in effect since January 14th.  Nothing moves straight up or down in the financial markets so, while the UUP’s medium term trend is still up, the short term picture is down.  The UUP closed at $23.27 and the 200 day EMA is at $23.31.  The relevant support levels below are $23.16 (top support) and $22.90 (50 day EMA).

Oil is on fire, literally and figuratively, as a cold winter in the United States has propped prices up and Nymex crude gained $2.64 a barrel (+3.55%, $77.07, 4:32 p.m.) for a second straight very strong day.  Strength was seen in most commodities and the record $1.56 trillion proposed budget deficit cannot be ignored here.  If we start running the dollar printing presses like that budget says, while holding interest rates low to create jobs, some very nasty inflation will not be far behind.

PNC Financial Services Group (NYSE: PNC) is going to offer $3 billion of common stock in order to redeem $7.6 billion of preferred shares it gave the U.S Treasury for a TARP loan.  One by one the private firms are paying the TARP back with interest and click here for a great web page that tracks where all the money went.  From what I can see Fannie Mae, Freddie Mac, General Motors, Chrysler and AIG have all our tax money.  I hope Volcker makes sure the auto companies, government sponsored entities (Fannie and Freddie) and insurance companies are not engaged in proprietary trading to protect us from more economic calamities.

We have MBA Purchase Applications reporting at 7 a.m. tomorrow, the Challenger Job-Cut Report at 7:30 a.m., ADP Unemployment at 8:15 a.m., the ISM Non-Manufacturing Index at 10 a.m. (51.0 expected) and the EIA Petroleum Status Report at 10:30 a.m.  Watch the oil market around that EIA report as the 6% gain in crude in the last 2 days will set oil up for a plunge if the numbers do not come in bullish.

Selected earnings estimates for Wednesday, February 3, 2010:

AFFX -0.10 after the close, AKAM 0.43, AMP 0.75 atc, ARW 0.61, AIZ 1.01 atc, BDK 0.77, BRCM 0.44 atc, CSCO 0.35 atc, CMCSA 0.27 before market open, DBD bmo, FNF 0.22 atc, HNT 0.67 bmo, HMC bmo, IP 0.23 bmo, ITT 0.93 bmo, WFR 0.00, MWW -0.01 atc, NOV 0.77 bmo, ONNN 0.14 atc, PFE 0.50, RL 1.01 bmo, RVSN 0.17, R 0.47, SLAB 0.62, SPF 0.02 atc, TMX 0.40 atc, TMO 0.88 bmo, TWX bmo, V 0.91 atc, WWW 0.45 bmo, YUM 0.48 atc.

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Wall Street Wrap

Fed Says Job Losses Abating, Leaves Rates Unchanged

By Robert Perrego, at 4:48 pm on December 16th, 2009

Well the good news is job losses are slowing down but the bad news is we are still losing jobs.  In the last meeting for 2009, the Federal Open Market Committee voted to keep interest rates “exceptionally low” for “an extended period of time” while noting that they are seeing some improvement in household spending.  This meetings statement was very similar to the past few except some comments were made on slowly improving areas of the economy such as household spending and decreasing job losses.  These statements strengthened the dollar with the US Dollar Index Future spot price trading up on the announcement.  You do not hear ‘The Fed’ without hearing ‘exit strategy’ these days and as it is widely thought that raising interest rates with 10% unemployment would not be greeted favorably by the Obama Administration, the first step towards the ‘exit’ would be to stop their quantitative easing programs.  So, The Fed also stated they will continue to purchase agency mortgage-backed securities through February 1, 2010 but after that ‘the store is closed.’

After The Fed announcement at 2:15 p.m., the Dow Jones Industrial Average dropped about 30 points net into the close to finish down 10.88 points (-0.10%, 10,441.12) while the S&P 500 dropped about 5 points on the announcement and finished up 1.25 points (+0.11%, 1109.18).  The Nasdaq 100 rose 2.61 points (+0.14%, 1,800.82).

The dollar traded up on the announcement and basically closed unchanged on the day.  Earlier in the day the usual relationships were acting as expected with the dollar down and stocks and commodities up.  Interestingly, the dollar rallied into the end of the day and erased its losses while gold and oil also closed near their highs on the day.  New York Spot Gold added $13.60 an ounce (+1.21%, $1,136.60, 4:14 p.m.) and the SPDR Gold Shares (NYSE: GLD) bounced off support and broke higher by $1.36 (+1.25%, $111.59).  The GLD’s chart looks very nice for more upside movement as the latest gold pullback may have seen its lows.  Paulson, Einhorn and most every other gold bull was saying they would be buying on dips and I wonder just how much they were able to add to their positions over the past 3 or 4 days.

Nymex crude added $2.03 a barrel (+2.87%, $72.72, 4:09 p.m.) as it seems the pullback in oil may be over with too.  We were below $70 a barrel on Monday but a nice run over the last two days has changed all that.  Copper, steel, coal and agricultural commodities were all up as well.

Another federal agency was in the news today as the Federal Trade Commission filed a lawsuit against Intel Corp. (NSDQ: INTC) for anti-competitive behavior.  I think the legal community founded Intel and they didn’t do it for semiconductor chips as this company generates lawsuits about every other day.  The lawsuit cites bundling practices and even a secretly redesigned compiler software that makes their competitors chips run a little slower.  Intel finished lower by 42 cents (-2.12%, $19.38).

Nvidia Corp. (NSDQ: NVDA) jumped higher as they are one of the firms that Intel is supposedly squeezing out of the chip market as the graphics chip company added $1.26 (+8.05%, $16.91).

Housing companies were strong today as Housing Starts were up 46k over last month and Permits were up 32k.  Beezer Homes USA Inc. (NYSE: BZH) gained 13.36% (+$0.60, $5.09), Pulte Homes Inc. (NYSE: PHM) gained 5.06% (+$0.45, $9.34), D. R. Horton (NYSE: DHI) gained 4.89% (+$0.48, $10.29) and Lennar Corp. (NYSE: LEN) was up 4.73% (+$0.57, $12.62).

The big economic news of the week was the FOMC meeting and with that out of the way we have Jobless Claims tomorrow at 8:30 a.m. with the expectations being 465k with a range from 460 to 470.  Friday is a quaruple witching day in the options market.

Tiger Woods name was only mentioned 232,000 times on CNBC today as something really important to all of our lives probably did not happen or have anything at all to do with Tiger Woods but CNBC was there to cover it.

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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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