Wall Street Wrap

Financials Weak and Dow 10,000 No More

By Robert Perrego, at 5:06 pm on February 8th, 2010

The Dow Jones Industrial Average slid steadily all afternoon closing down 103.84 points today (-1.03%, 9,908.39) and closed below 10,000 for the first time since November 4th of last year.  All but 2 of the 30 components were losers today with the three weakest stocks all being finance related companies.  Bank of America Corp. (NYSE: BAC) dropped 3.46% (-$0.52, $14.48), American Express Co. (NYSE: AXP) lost 2.80% (-$1.06, $36.79) and the Travelers Companies Inc. (NYSE: TRV) finished lower in the red by 2.44% (-$1.23, $49.05).  Home Depot Inc. (NYSE: HD) was the strongest of the Dow components gaining 2.18% and also up were home builders Lennar Corp. (NYSE: LEN) +4.62%, Beazer Homes USA Inc. (NYSE: BZH) +3.64% and Pulte Homes Inc. (NYSE: PHM) +2.29%.

The S&P 500 dropped 9.45 points (-0.89%, 1,056.74) and the Nasdaq 100 was down 11.24 points (-0.64%, 1,734.88) and was the leader by being the smallest loser.

I guess the sky stopped falling over in Europe as the euro stabilized against the dollar and Greece was mentioned by the talking heads on CNBC slightly less than the babbling about former Merrill Lynch & Co. chief John Thain getting a new job over at CIT Group Inc.  Various cures for what ails Greece have been proposed from applying for loans from the International Monetary Fund to getting more on their credit card from other EU members.  I vote the EU members bail the EU members out as we pay into the IMF and the chances of Greece paying that money back anytime soon with a strike or protest every other day does not look to good to me.  The Greeks are proud of the fact they invented democracy and the rest of the world is pretty happy they gave it to us, but constantly striking, protesting and having your voice heard pays less taxes than actually going to work.

The dollar slipped marginally, but stayed up at level it has not seen since August of last year.  With the dollar at this relatively high level and basically scared up a tree by the crisis in Greece (and other countries), commodities are looking like a bargain if you think the dollar will come back down when (if) Europe stabilizes.

New York spot gold lost $2.70 an ounce and last traded at $1,062.30 (-0.25%, 4:24 p.m.) as this percentage loss outperforms the 1%+ the DJIA lost.  CNBC has had gold up all day over $10 an ounce and I am guessing the futures contract they are watching is longer dated than the spot market.  If you are invested in or trading the gold ETF’s you will find that they correlate more closely with the spot market than whatever CNBC decides to display.

Oil gained $0.48 to $71.65 a barrel (+0.65%, 4:27 p.m.) as the steep slide down from last Wednesday’s peak is halted.  Oil reversed in this general neighborhood last December with the United States Oil Fund (NYSE: USO) bottoming at $35.48 on December 11th before running up to $41.17 on January 8th (+16%).  For all you channel and range traders out there, today’s close at $35.09 does hit short term bottoms from last December, September and August.

We have a relatively light economic calendar this week with no speeches or testifying for Timothy Geithner.  Fed Chairman Ben Bernanke testifies in front of the house Financial Services Committee on Wednesday about how he is going to let all the air out of the liquidity balloon without crushing job creation (like that is happening now anyway).  As long as I don’t hear ‘then we pray’, it sounds like a plan to me.  Ben is a pretty smart guy and the fact that our economically challenged politicians are going to quiz him on whatever he decides to do and then possibly even understand his answer is comical.

Tomorrow at 7:45 a.m. we have the ICSC-Goldman Store Sales, at 8:55 a.m. we get the Redbook and Wholesale Trade numbers come out at 10.

Selected earnings estimates for Tuesday, February 9th:

AGU 0.24, AFG 0.98 after the close, BIDU 1.68 atc, BJS 0.04, CAM 0.53, CHD 0.80 before market open, CVH 0.56 bmo, EOG 0.98 atc, IT 0.26 bmo, IFF 0.62 bmo, LGF -0.23 atc, MLM 0.33, TAP 1.10, NYX 0.48 bmo, PCH 0.04 bmo, PHM -0.19 bmo, RNR 2.50 atc, TIN 0.03 bmo, KO 0.67 bmo, VSH 0.12 bmo, VMC -0.01, DIS 0.39 atc, XL 0.70 atc

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Wall Street Wrap

Greece Dropkicks the Euro, Bad Debt is Back!

By Robert Perrego, at 5:38 pm on February 4th, 2010

In 2008 and 2009 we had toxic bundled up mortgage debt and the toxic debt of financial companies and derivatives clobbering the market.  Then we hit a speed bump on the way to the Dow Jones Industrial Average bouncing to 10,729 and that was the toxic debt of a multi-billion dollar real estate company in Dubai.  Now we are getting to the major league of toxic debt – sovereign debt.  Money ran to the safety of the dollar and Treasury bonds today, or it might be more appropriate to say that money was running away from the Euro and the sovereign debt of Greece, Portugal and Spain today.

How does this affect stocks here in the United States?  For almost a year now, as the Federal Reserve slashed interest rates to near zero to prop up our faltering economy, huge dollar carry trades have been made.  The ‘carry trade cowboys’ have been shorting the dollar and buying stocks and commodities.  This is the linkage – as the dollar jumped higher today on money flooding out of Europe, the short positions in the dollar got squeezed and forced to buy in or cover.  When you short a financial instrument, you are selling it to someone and the money they pay for it is given to you.  Now the cowboys to buy their dollar shorts in and in order to do this, they are raising money by selling their stocks and commodities they bought with the short proceeds.

You didn’t think last year’s massive rally was based upon economic fundamentals did you?  Company earnings?  Other than a slightly repaired banking system, the economy is still in deep weeds with 10%+ unemployment.  About the only economic numbers that have been changing for the United States is that unemployment and our debt has been going up.  This has been happening globally and the weaker economic countries like Greece are to the point where no one wants to lend them any more money.  If a lender shows up, they want to oversee how the money is spent and to make sure budgets are adhered to, etc…  You can think of this as an intervention if you like.

Have you ever seen the person an intervention is called for happy?  The people of Greece are not too happy as they see this intervention, or meddling, of the European Union as objectionable.  To be more precise they see the EU/Greek Governments plan of freezing their budgets and no pay raises as objectionable, and as a highly unionized country, they are going on strike.  This certainly does not help tax collection and so on and on it goes, the vicious circle of an economy you certainly don’t want to be lending money to.  So you sell Greek bonds, you sell the Euro as Greece is not the only member country this is happening to, you notice that the other EU countries have loaned Greece a lot of money so you sell them too.

When you sell the euro you buy the dollar, causing the cowboys to sell stocks and commodities driving down stock markets around the world.  Looking around you see that the only market going up is Treasury bonds, the ultimate instrument of investing safety and the port in the storm.  Then you notice Moody’s (the credit rating agency that pretty much missed the entire credit crisis – they went fishing I guess) is warning the United States about their credit rating.  Uh oh.

Crash!  Bang!  Ouch!

The Dow Jones Industrial Average dropped 268.37 points today (-2.61%, 10,002.18) and broke their support level at 10,090 mentioned here in past ‘Wraps’.  Next support level is at 9,820.  The S&P 500 fell 34.17 points (-3.11%, 1,063.11) breaking support at 1,070 with the next support level at 1,046 (200 day EMA).  The Nasdaq 100 closed lower by 51.71 points (-2.88%, 1,732.99) and is right on support at 1,730 with next level down at 1,674 (200 day EMA).

The PowerShares DB US Dollar ETF (NYSE: UUP) made a new high for 2010 gaining 0.64% (+$0.15, $23.55) as the CurrencyShares Euro trust ETF (NYSE: FXE) got hit for 1.11% (-$1.55, $137.16).

Commodities got clobbered as well with New York spot gold dropping $46.90 an ounce (-4.23%, 4:17 p.m.) but held support of $1,060 (mentioned in previous posts).  They are selling everything but Treasuries so covering shorts for gold here is not a bad idea but I would wait until the dust clears a little to establish new long gold positions.  Nymex crude got smoked, dropping $3.97 a barrel (-5.16%, 4:08 p.m.) to $73.01.

The 10-year Treasury rose 30 ticks (30/32) to $98 8/32 with the yield dropping to 3.59%.  The 30-year jumped $1 26/32, almost two handles (2 points), to $97 18/32 as yields dropped 11.5 basis points to 4.52%.  These are big moves for the bond market.

London -2.17%, Paris -2.75%, Frankfurt -2.45%, Tokyo -0.46%, Hong Kong -1.84%, Sydney -0.62%, and India was up 2.06%.  I have no idea why India was up – maybe they shorted Greek bonds.  Asia did not get hit as hard as their exchanges closed before the selling really started.  Most likely, they will catch up going down tomorrow.

Everything got sold.  Bad Debt is back!

Want more bad news?  Tomorrow we get the Employment Situation number at 8:30 a.m. and the consensus estimate is we did not lose any jobs in January.  I will believe that when I see it.  The overall percentage is expected to come in at 10.1%, which is an uptick from the current 10% level.

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Wall Street Wrap

Bad Debt is Back! Greece Dropkicks the Euro

By Robert Perrego, at 5:07 pm on February 4th, 2010

In 2008 and 2009 we had toxic bundled up mortgage debt and the toxic debt of financial companies and derivatives clobbering the market.  Then we hit a speed bump on the way to the Dow Jones Industrial Average’s 2009 bounce back to 10,729, and that was the toxic debt of a multi-billion dollar real estate company in Dubai.  Now we are getting to the major league of toxic debt – sovereign debt.  Money ran to the safety of the dollar and Treasury bonds today, or it might be more appropriate to say that money was running away from the Euro and the sovereign debt of Greece, Portugal and Spain today.

How does this affect stocks here in the United States?  For almost a year now, as the Federal Reserve slashed interest rates to near zero to prop up our faltering economy, huge dollar carry trades have been made.  The ‘carry trade cowboys’ have been shorting the dollar and buying stocks and bonds.  This is the linkage – as the dollar jumped higher today on money flooding out of Europe, the short positions in the dollar got squeezed and forced to buy in or cover.  When you short a financial instrument, you are selling it to someone and the money they pay for it is given to you.  These ‘cowboys’ have been using this money to buy stocks and commodities.  Now they need to buy their dollar shorts in and in order to do this, they are raising money by selling stocks and commodities.

You didn’t think last year’s massive rally was based upon economic fundamentals did you?  Company earnings?  Other than a slightly repaired banking system, the economy is still in deep weeds with 10%+ unemployment.  About the only economic numbers that have been changing for the United States is that unemployment and our debt has been going up.  This has been happening globally and the weaker economic countries like Greece are to the point where no one wants to lend them any more money.  If a lender shows up, they want to oversee how the money is spent and to make sure budgets are adhered to, etc…  You can think of this as an intervention if you like.

Have you ever seen the person an intervention is called for happy?  The people of Greece are not too happy as they see this intervention, or meddling, of the European Union as objectionable.  To be more precise they see the EU/Greek Governments plan of freezing their budgets and no pay raises as objectionable, and as a highly unionized country, they are going on strike.  This certainly does not help tax collection and so on and on it goes, the vicious circle of an economy you certainly don’t want to be lending money to.  So you sell Greek bonds, you sell the Euro as Greece is not the only member country this is happening to, you notice that the other EU countries have loaned Greece a lot of money so you sell them too.

When you sell the euro you buy the dollar, causing the cowboys to sell stocks and commodities driving down stock markets around the world.  Looking around you see that the only market going up is Treasury bonds, the ultimate instrument of investing safety and the port in the storm.  Then you notice Moody’s (the credit rating agency that pretty much missed the entire credit crisis – they went fishing) is warning the United States about their credit rating.  Uh oh.

Crash!  Bang!  Ouch!

The Dow Jones Industrial Average dropped 268.37 points today (-2.61%, 10,002.18) and broke their support level at 10,090 mentioned here in past ‘Wraps’.  Next support level is at 9,820.  The S&P 500 fell 34.17 points (-3.11%, 1,063.11) breaking support at 1,070 with the next support level at 1,046 (200 day EMA).  The Nasdaq 100 closed lower by 51.71 points (-2.88%, 1,732.99) and is right on support at 1,730 with next level down at 1,674 (200 day EMA).

The PowerShares DB US Dollar ETF (NYSE: UUP) made a new high for 2010 gaining 0.64% (+$0.15, $23.55) as the CurrencyShares Euro trust ETF (NYSE: FXE) got hit for 1.11% (-$1.55, $137.16).

Commodities got clobbered as well with New York spot gold dropping $46.90 an ounce (-4.23%, 4:17 p.m.) but held support of $1,060 (mentioned in previous posts).  They are selling everything but Treasuries so covering shorts for gold here is not a bad idea but I would wait until the dust clears a little to establish new long gold positions.  Nymex crude got smoked, dropping $3.97 a barrel (-5.16%, 4:08 p.m.) to $73.01.

The 10-year Treasury rose 30 ticks (30/32) to $98 8/32 with the yield dropping to 3.59%.  The 30-year jumped $1 26/32, almost two handles (2 points), to $97 18/32 as yields dropped 11.5 basis points to 4.52%.  These are big moves for the bond market.

London -2.17%, Paris -2.75%, Frankfurt -2.45%, Tokyo -0.46%, Hong Kong -1.84%, Sydney -0.62%, and India was up 2.06%.  I have no idea why India was up – maybe they shorted Greek bonds.  Asia did not get hit as hard as their exchanges closed before the selling really started.  Most likely, they will catch up going down tomorrow.

Everything got sold.  Bad Debt is back!

Want more bad news?  Tomorrow we get the Employment Situation number at 8:30 a.m. and the consensus estimate is we did not lose any jobs in January.  I will believe that when I see it.  The overall percentage is expected to come in at 10.1%, which is an uptick from 10%.

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Wall Street Wrap

Helicopter Ben at the Controls, Dollar Drops, Market Pops

By Robert Perrego, at 10:46 pm on November 16th, 2009

Federal Reserve Chairman Ben Bernanke spoke to the Economic Club of New York today about the dollar, unemployment and the economic recovery.  Nicknamed ‘Helicopter Ben’ after a speech he gave on deflation, which cited a statement by Milton Friedman about using a ‘helicopter drop’ of cash, Bernanke appeared none too optimistic on the economy and stated exceptionally low interest rates would be needed for an ‘extended period’.  Then, to make the bulls and the carry trade cowboys break out the champagne, Bernanke said “It’s extraordinarily difficult to tell, but it’s not obvious to me … there are any large misalignments currently in the U.S. financial system.”

In plain English, Helicopter Ben does not see any bubbles.  This type of statement basically supercharges any asset class that is currently thought to be in ‘bubble conditions’, such as stocks, bonds and commodities, as now the world’s most powerful central banker is on their side.  As a result, we got 2009 highs in the market indexes, all time highs in the price of gold and a confirmation signal of a bull market from The Dow Theory.

The Dow Jones Industrial Index ran up 136.49 points (+1.32%, 10,406.96) and the S&P 500 broke 1,100 and rose 15.82 points (+1.44%, 1,109.30).  The Nasdaq 100 broke 1,800 gaining 18.95 points (+1.05%, 1,807.56).  All three of these indexes closed at 2009 and 52 week highs.

One of the signals of a bull market from Dow Theory is that one average confirms another.  The two averages used here are the Dow Jones Industrial Average and the Dow Jones Transportation Average.  The Industrial Average has been ahead as of late, setting new highs as recently as November 9th, while the last time the Transportation Average set a new high was October 20th.  Today, both the Transportation and Industrial Averages closed at 2009 and 52 week highs when the Transports closed at 4046.30.

A stock in both these averages, Boeing Co. (NYSE: BA) did not sell any airplanes over at a Dubai airshow, but they made some noise by signing a development deal with Abu Dhabi’s state investment vehicle Mubadala Development Co., to help the country diversify away from the oil patch and build an aerospace industry.  Boeing was the biggest gaining component of the Dow Jones Industrial Average up $1.80 (+3.55%, $52.48).

New York Spot Gold traded up as much as +25.80, at all time high of $1,144.40 an ounce.  At 12:15 p.m., gold was up about $17 an ounce when Bernanke started speaking.  Ben’s first comments seemed pro dollar strength and the PowerShares Dollar ETF (NYSE: UUP) spiked higher on heavy volume immediately.  At the same time gold and all three of the market averages started dropping as dollar shorts were bought in and long stock positions liquidated.  Fifteen minutes later the plunge reversed, gold bottomed out up about $11 an ounce and then took off for another $15 an ounce to trade $1,144 at about 2:30 p.m.  New York Spot Gold settled up $20.20 an ounce (+1.81%, $1,138.70, 4:08 p.m.)

Nymex crude went down on Friday while the rest of the market enjoyed an up day on a bad Consumer Confidence number.  Today, oil made up for lost time gaining $2.55 a barrel (+3.34%, $78.86, 4:17 p.m.) on a weakening dollar.

Economic reports this week may make the market seem like topsy-turvy world.  Right now the market run is being fueled by a dollar carry trade, so any reports that the economy is weak means interest rates (and the dollar) will remain low.  Tomorrow we get the Producer Price Index at 8:30 a.m. (0.5%, ex. food and energy 0.1% expected) and then Industrial Production at 9:15 a.m. (0.4%, 70.7%).  Wednesday bring the Consumer Price Index (0.2%, 0.1%) and Housing Starts (600K), both at 8:30 a.m.  and Thursday is good ole Jobless Claims (504k) at 8:30 a.m. and Leading Indicators (0.4%) and The Philly Fed Survey (12.0) at 10 p.m.

With the CPI and PPI, low numbers means no inflation so no need to raise interest rates.  This is bullish for the carry trade cowboys.  On the other hand, high numbers that indicate inflation will bring more pressure to raise rates and cause the shorts to get nervous.  This is the same in one way or another with all the releases coming out this week.  If all of a sudden we get a large drop in Jobless Claims, this too would also build pressure for a rise in rates.

Welcome to investing and trading 2009, where because of the dollar carry trade, down is up.

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Week on Wall Street

The Fed Presidents and The G20 Clear the Way

By Robert Perrego, at 9:00 am on November 14th, 2009

Low interest rates may percolate some future inflation for us, but one other thing they bring is higher asset prices.  This Week on Wall Street saw gold trade a new all time high and all three major indexes, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq 100, traded new 2009 highs.  On the week, gold gained 1.96% even while the  dollar gained ground slightly and on Friday news out of Vietnam was that they were lifting restrictions on import of the precious metal.  The Nasdaq 100 was the strongest index of the week gaining 3.34% with the Dow Jones Industrial Average up 2.46% and the S$&P 500 turning in a 2.26% performance.  The loser of the week was oil as weak economic reports for the U.S. tempered expected demand.

On Saturday the G20 met with the world’s central bankers agreeing to keep the mountains of economic stimulus in place, meaning low interest rates had clear sailing ahead.  This agreement powered stocks higher Monday with the Nasdaq and the Dow steaming ahead and setting 2009 highs, while the S&P 500 closed just 4 points short of its high.

On Tuesday microphones were turned on all over the country for the regional Fed Presidents.  Janet Yellen (San Francisco), Dennis Lockhart (Atlanta), Jeffrey Lacker (Richmond) and Richard Fisher (Dallas) all spoke to different venues opining that they saw, among other things, a jobless recovery and low interest rates ahead.  With the official unemployment rate at 10.2% and rising, there is a lot of pressure from both Washington D.C. and across the United States to keep interest rates low for job creation.  Telling the carry trade cowboys that interest rates are staying low is like sounding the all clear bell for shorting the dollar and buying ‘risky assets’.  When you can short the dollar at 0-0.25% and take that money to buy stocks and commodities the ‘free money’ bell goes off in these players heads and the buying starts.

Wednesday started with a bang in the gold market as Goldman upped their estimates for the precious metal to $1,200 citing their observation that the world’s central banks are becoming net buyers of gold.  China reported that their industrial production jumped 16% and the Chinese Government seems to be signaling a willingness to appreciate their currency.  This seems to be very generous of the Chinese as an appreciation of their currency means that the trillion dollar plus they are holding of the dollar is worth relatively less, but it is just good business.

It seems the Chinese have finally realized it is not all about building foreign reserves and holding dollars, but that if they have all that dollar money tied up there, it is not flowing around over here.  By appreciating the yuan and making U.S. products cheaper in China, we can export more which creates jobs here.  This causes dollars to flow back to the United States strengthening the dollar itself, jobs are created and the greatest consumers of Chinese goods get back to work.  It is called ‘international trade’ as trade means back and forth, and the imbalance that was dollars heading there and goods here is unsustainable.  Sooner or later the correcting mechanism of currency valuation is supposed to kick in and shift the flow of goods so that imbalances are corrected.  The long time pegging of the yuan to the dollar has distorted the trade balance, sucking our jobs and dollars to China.  Good business, long term sustainable business, means it is time to reverse this flow.  No good businessman puts his customers out of business and the Chinese are starting to recognize this.

Thursday saw a settlement between Intel Corp. (NSDQ: INTC) and Advanced Micro Devices (NYSE: AMD) bury the legal hatchet and strike up a cross-licensing deal.  This gives AMD $1.25 billion to lighten their debt load and might get regulators off Intel’s back.  Wal-Mart Stores Inc. (NYSE: WMT) posted strong earnings but warned about the purchasing patterns they see with their customers in front of the holiday buying season.

Friday was a day all about gold and retail, with two IPOs (Dollar General and Rue 21) and earnings beats posted by J.C. Penney (NYSE: JCP) and Abercrombie & Fitch (NYSE: ANF).  New York Spot Gold traded a record $1,120.30 an ounce as the dollar traded off its intra-week spike high.  Merrill Lynch upped their estimates for copper for 2010 and 2011, making the mining sector, especially the gold miners with significant copper operations, very attractive.

On Thursday after the close Walt Disney Co. (NYSE: DIS), a Dow Jones Industrial component, posted 46 cents a share which was a surprising jump in quarterly profit of 18%.  This performance pushed Disney to a 2009 high with the week closing out at 2009 highs for the indexes and many other stocks.

The index numbers are looking a lot healthier with the Dow Jones Industrial Average 2.7% above five digit 10,000 and the S&P 500 in shouting distance of 1,100.  A solid week next weak could see the Nasdaq 100 pushing 2,000 as the tech market continues its strong march higher.

For those holding gold and other commodities, the dollar weakness and the carry trade are supercharging returns.  As market players, Fed Presidents, politicians and central bankers argue about economic policy and whether or not Fed Chairman Bernanke should raise rates, the numbers in peoples stock accounts are going up.  The inflation boogeyman is hiding on the horizon somewhere and I leave you with this last link to comments by legendary investor Jim Rogers.

Enjoy your weekend.

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