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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Wall Street Wrap

Market Posts Solid Gains, NBC Sold, New Highs for Gold

By Robert Perrego, at 5:27 pm on December 1st, 2009

The Market ripped higher today, making up the ground lost last Friday on the Dubai World news.  Traders decided the crisis would be contained and that this was not ‘Meltdown 2′, so they got back to business as usual shorting the dollar and buying up stocks and commodities.  Gold traded a new all time high above $1,200 an ounce on the weak dollar.  General Electric (NYSE: GE) and Vivendi struck a deal that clears the way for the sale of NBC to Comcast (NSDQ: CMCSA), as reported by David Faber from CNBC, the deal with Comcast was all but done except for the paperwork.

On that news, GE gained 15 cents on the day (+0.93%, $16.17) and Comcast was also up 30 cents (+2.04%, $14.96) on a deal the market seems to like for both players.  Positive results from Cyber Monday provided a lift to retail and every sector started running except for finance.  The Dow Jones Industrial Average traded above 10,500 for the first time in 2009 and closed up 126.74 points (+1.22%, 10,471.58), a new closing high for the year.  The S&P 500 added 13.23 points (+1.20%, 1,108.86) and the Nasdaq 100 tacked on 20.28 points (+1.14%, 1,787.71).

The dollar was hit as the carry trade cowboys went back to shorting it, after deciding Dubai World was not the next Lehman Brothers.  This should not be a surprise as Dubai and the UAE are sitting on 80 billion barrels of oil, a massive amount of natural gas and the Middle East is flooded with petro-dollars.  During the meltdown last winter, traders got nervous and flew to quality, which ironically was the dollar.  Looking at a chart of the dollar you can see that it peaked as the market bottomed March 9th.  Last Friday when the Dubai World news came out, traders once again instinctively flew to the dollar.  Currently, with so many shorts positions in the dollar as a result of the carry trade, market players feared a short squeeze and a rapid jump higher in the dollar.  Everyone knows the dollar is heavily shorted right now, so those short are going to hit that buy button the second they think others are about to.    When the going gets tough, the tough get going into treasuries and the dollar.  Conversely, when the coast is clear they short the dollar like crazy.

This pressure on the dollar caused New York Spot Gold to trade a new all time high of $1,202.50 an ounce.  NY Spot was last seen trading $1,197.20 (+1.55%, +$18.30, 4:24 p.m.).  The SPDR Gold Trust (NYSE: GLD) gained 1.5% while the Market Vectors Gold Miners Index (NYSE: GDX) jumped 5.12%.  No matter how you owned an interest in gold, you made money as it just keeps on going higher.

Oil was higher on the weak dollar and also on manufacturing news out of China and here at home.  The ISM Manufacturing Index released this morning came in below expectations but was still above 50, which means an expansion in manufacturing (53.6 vs. 55.0).  This marks four straight months above 50.  Nymex crude added $1.09 a barrel (+1.42%, $78.11, 4:20 p.m.) and briefly traded above $79.

The financial sector lagged the market rising an anemic 0.52% with energy turning in the top performance gaining 1.83%.  Tech put in a solid showing at 1.59% while the S&P 500 as a whole gained 1.20%.

Philadelphia Fed President Charles Plosser became the first central banker to come out for higher interest rates sooner than later.  Just a few weeks ago all the bankers lined up and said they saw low rates as far as the eye could see, but now Plosser is running counter to that.  Whenever it happens that they make that first move higher in interest rates, the heavy short position in the dollar is going to cause a short squeeze.  As the dollar shoots up, commodities will get hit and stocks will get hit as the carry trade is unwound in rapid fashion.  This puts the Fed in a precarious position, as knowing there is that much short dollar-long stocks carry trade air in the market, their move means ‘POP’ as they prick yet another bubble of their creation.

Tomorrow we have the MBA Purchase Applications at 7 a.m. and the ADP Employment Report at 8:15 a.m.  Geithner speaks before the Senate Agriculture Committee at 9:30 a.m. and the FOMC Beige Book is released at 2 p.m.

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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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