Week on Wall Street

Market Down on Poor Confidence Reports

By Robert Perrego, at 6:05 pm on February 23rd, 2010

Housing centric Home Depot Inc. (NYSE: HD) was the top performer in the Dow Jones Industrial Average today, gaining 1.41% (+$0.43, $30.75).  This is somewhat ironic as the DJIA dropped 0.97% (-100.97, 10,282.41) and to have a housing industry related stock the best performer while the market goes down is an about face from last February to say the least.  Only 3 of the 30 components of the Average were up with the other 27 closing down 0.28% to down 2.65%.  The stock market traded higher off the open this morning until 10 a.m., when the Consumer Confidence report was released.  The expected number was 55 with a 52 to 57 range and when the number came in at 46, the market thought about it for a second, and everyone started hitting the sell button.

The S&P 500 lost 13.41 points (-1.21%, 1,094.60) and the Nasdaq 100 dropped 23.81 points (-1.3%, 1,793.82).

Low confidence seems to be a global problem as Germany, Europe’s largest economy, reported their Ifo Business Index unexpectedly dropped from 95.8% to 95.2% while analysts were expecting a rise to 96.4%.  Strikes, walk-outs and protests are occurring all across Europe as workers, unhappy with delayed retirements and just about everything else economically, vent their frustrations.  Here in the United States not a lot of people are going on strike as a quick look at the news headlines shows people are still getting laid off and fired left and right.  The Metropolitan Transit Authority in NYC is cutting 1,000 jobs, including top managers while San Francisco prepares to let 900 teachers and other school employees go.

No jobs means no paychecks.  No paychecks means no purchases and that means no need for workers to make no products being sold.  I saw a news headline with the word ‘deflation’ in it today, which is the first time for this in about a month as most economists thought we averted that disaster.  Guess again.  I would not advise going on strike or protesting your pay as the latest estimates are that 19.9% or 1 in 5 workers are under-employed.  Supply and demand for jobs right now is in the employers favor as, chances are, there is someone out there willing to do your job for less.

Anyone looking for good news can notice that Ford Motor Co. (NYSE: F) was up 3.47% today (+$0.39, $11.60), and to see an auto company and Home Depot up in a down market like this lets you know anything can be turned around.  Remember when General Motors was going out of business and Toyota Motor Corp. (NYSE: TM) was king of the hill?  Today, Toyota executives testified to a hostile Congressional Committee about their 8 million vehicle recall, a pesky sticking accelerator and cars that can turn into a 100 mph run away horse with a mind of its own.  Toyota stock finished down 1.89% (-$1.38, $71.55).

Trading screens were mostly red as nothing seemed to escape the broad selling.  Stocks, oil, gold, commodities all finished lower with the dollar a tiny island of green on my trading screen.  The PowerShares DB US Dollar Index (NYSE: UUP) closed up $0.13 (+0.54%, $23.81), New York spot gold dropped $$9.60 an ounce (-0.86%, $1,103.00, 4:37 p.m.) and Nymex crude gave up the $80 level dropping $1.23 to $79.08 a barrel (-1.53%, 4:30 p.m.)

Former Fed Chairman Alan Greenspan gave a very disturbing picture of the economy, saying the recovery was ‘unbalanced’ and that high-income consumers were one of the main drivers of consumption.  These consumers are spending more as the market is up but, if this market starts to drop again and they clam up their wallets, it could accelerate the drop.  Federal Deposit Insurance Corp. Chairwoman Sheila Bair stated the agency now has 702 banks on their ‘distressed’ list, up from 552 at the end of September.  This time around the problems are driven mostly by trouble with commercial real estate.

To end with at least an attempt to have a positive attitude – it’s not Monday.

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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

Google Throws Their Phone into the Ring

By Robert Perrego, at 4:56 pm on January 5th, 2010

Ever since Eric Schmidt, Chairman and CEO of Google Inc. (NSDQ: GOOG), left the board of Apple Inc. (NSDQ: AAPL), people wondered how an executive of a possibly competing company ever got on the board in the first place.  Until today, Apple and Google never had a heads up competition but that all just changed.  The new Google phone, the Nexus One, is not a competitor to the iPhone in the same way as the Blackberry is.  The Google phone has been designed around ‘Apps’ and directly targets the iPhone user, whereas the Blackberry grew up through the business crowd and accessing emails and documents for work related issues.  The biggest winner will be the consumer as a legitimate challenger, supported by a cutting edge technology company, has now set their sights on this very lucrative market.  Google stock dropped 0.44% (-$2.76, $623.99) today while Apple stock gained 0.17% (+$0.37, $214.38).

The market was split today with the Dow Jones Industrial Average losing 11.94 points (-0.11%, 10,572.02) while the S&P 500 gained 3.10 points (+0.27%, 1,136.23).  The tech heavy Nasdaq 100 rose 1.73 points (+0.09%, 1,888.43).

As far away from the newest thing in technology as you can possibly get is where big gains were made today as coal companies posted advances on freezing temperatures around the world.  Massey Energy Corp. (NYSE: MEE) gained 4.25% (+$1.88, $46.03) and is up 10% over the last two days.  Not to be outdone, Arch Coal, Inc. (NYSE: ACI) jumped 4.59% (+$1.08, $24.56) and also is up over 10% in 2010.  Peabody Energy Corp. (NYSE: BTU) added 3.36% (+$1.62, $49.50) and CONSOL Energy Inc. (NYSE: CNX) was up 3.09% (+$1.64, $54.59).  If you got a lump of coal in your stocking this past Christmas, or even better coal shares, this is a belated Merry Christmas for sure.  The Market Vectors Coal ETF (NYSE: KOL) is up from $36.12 to $39.32 in 2010 for a gain of 8.86%.

Factory orders came in very strong as jumps in coal and petroleum prices contributed strongly with the reported number of a 1.1% increase besting the range expected (-1.1% to +1.0%) and more than doubling the expected number of +0.4%.  Tempering the strong results out of the factories was weak results in Pending Home Sales, as the month-over-month number dropped 16%.  This report can be taken with a grain of salt as it is possible few people are shopping for a house while shopping for holiday gifts.

Motor Vehicle Sales came in above the expected number this morning (8.5 million vs. 8.4) for December.  Ford Motor Co. (NYSE: F) saw sales jump 33% while Chrysler and General Motors, or Government Motors, both saw sales drop.  GM had sales down 5.7% but stated that in the four brands they will be keeping, sales were up 2.2% (the axe is falling on Pontiac and Saturn).

The oil market quieted down today after yesterdays $2 plus jump.  Nymex crude was up just 35 cents (+0.43%, $81.86, 4:04 p.m.) today.  The dollar opened lower and traded up into positive territory, as the DXY closed up 0.13% (+0.10, 77.62).  Gold opened higher and traded lower, inverse to the dollar as usual, but finished marginally down losing $2.60 an ounce (-0.23%, $1,118.30).

Byron Wein, BlackRock, Inc. (NYSE: BLK) Vice-Chairman, was on CNBC predicting a strong year for the Japanese stock market in 2010, and this guy has been around and good at picking markets for a long time.  There are a lot of countries you can ‘buy’, by investing in their ETF’s.  Some of these countries’ economies, and thus their ETF’s, are associated with different sectors of the market.  Japan has a tech heavy economy while Australia (EWA) and Canada (EWC) are natural resource plays.  If you want to bet with Byron, the iShares MSCI Japan Index Fund (NYSE: EWJ) would be the way to go and closed at $10.05 today.

Tomorrow we get the ADP Employment Report before the market opens at 8:15 a.m. and the ISM Non-Manufacturing Index (50.4) at 10 a.m.  Also able to move the markets is the minutes from the last FOMC meeting, which will be released tomorrow at 2 p.m.

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Tracked.com Topics

2010: A Car Odyssey?

By Taryn Cooper, at 4:05 pm on January 5th, 2010

Will 2010 be the year for automobile sales to ride again? A quote from Koichi Kondo, Honda Motor Co’s executive vice president and representative director, suggests that the automobile market has bottomed out (subscriber-content only).  This suggests that from here, the auto sales market can only go, as they say, “up.”

Anecdotes and statistics over the last month suggest though that while parts of the global auto economy have done well, the industry as a whole still has very far to go.

Toyota and Honda announced that they will be presenting new models in India, where currently Suzuki Motors has about 50% of the market.   India’s burgeoning middle-class, numbered at 50 million strong, should enjoy the competition.

Ford Motor Company’s overall sales were down in 2009, but had an uptick in December with a 33% sales gain.  As a result, its stock hit a since-2005-high of $11/share.

On the U.S. side, General Motors did not have an encouraging year, with sales dropping 33% over 2009.  However,  GM still inspires consumer confidence in Canada, leading Canadian automobile sales over the year.

Out of the “Big Three” in U.S. autos, Chrysler seems to have the most trouble climbing out of the abyss of Chapter 11.  Although sales slipped just 4% in the month of December, it was also the worst year reported for them in roughly 40 years.  In just a month, Chrysler CEO Sergio Marchionne is planning on curbing production in several assembly plants for 2010.

I still believe that 2010 is a recovery period for the automobile industry, especially in developed countries.  A few years ago, I saw an obscure broadcast on CNBC where an independent research analyst suggested that as auto sales go, so does the economy.

This thinking makes sense in a way since people will treat buying a new car as a “luxury” and less of a “need.”  Human nature dictates that they will take a wait-and-see approach and be less frivolous.  If consumers do not feel comfortable with the purchase, can’t swing new payments, or can eke out a few more years on their old car, chances are he or she will not go ahead and buy a car.

However, it is obvious that developing countries may have more buying power to keep auto companies afloat for the time being, so the companies can concentrate on building cars in the developed countries that are doing well (like economy and “green” cars).

A piece in the Business Standard today suggested that Americans are still buying cars.  Take out the whole cash-for-clunkers account.  What does that say for the auto retailers, who are still incentivizing car purchases in order to get customers into their dealerships?

The idea is ponderous,  to say the least.

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Wall Street Wrap

Wall Street Wrap – Indecision in front of The Fed

By Robert Perrego, at 6:00 pm on November 2nd, 2009

Ford Motor Co. (NYSE: F) reported their first profit since 2005 and surprised the street, which expected yet another loss from the one major American auto company that did not take TARP funds.  The good news from Ford helped offset the bankruptcy filing by CIT Group Inc. (NYSE: CIT) and weakness in Asian markets.  Then, at 10 a.m., economic reports showing strength in the U.S. economy caused the dollar to trade off sharply and the Dow Jones Industrial Average ran up to 9,858 (+145) and the markets were off to the races.

The Institute for Supply Management’s Manufacturing Index came in at 55.7 with 53.0 being expected.  One of the brightest parts of this report was that the employment component of this index rose to above 50, indicating that manufacturers actually hired people last month.  This bright spot in the gloomy employment picture may have helped ease one of the principle fears surrounding the CIT bankruptcy – loans to small businesses.  CIT is one of the largest lenders to small and medium sized business in the country.  With the bankruptcy filing, there is major concern that these businesses may suffer from reduced liquidity .  As small businesses have been the driving job creation force for the last 15 years, the liquidity loss the CIT bankruptcy represents could put a serious crimp in any economic recovery.

At the same time the market was receiving the favorable ISM news, two other economic releases surprised to the upside.  Pending home sales came in at 110.1 with 103.8 expected and Construction Spending increased by 0.8% with a decline of 0.2% expected.  So, with favorable news in employment, home sales and construction spending, the market fired up 145 points within minutes.  Then after spending a little time all happy about getting back about 60% of Friday’s 250 point hammering, the market rolled over and by 12:55 the Dow was looking at an 18 point loss.

The Dow Jones Industrial Average eventually ended finishing up 76.71 points (+0.78%, 9,789.44) after much volatility and reversing itself twice.  The S&P 500 rose 6.69 points (+0.64%, 1,042.88) and the Nasdaq 100 lagged its two compadres gaining only 5.78 points (+0.34%, 1,672.91).  One need only look to tomorrow and the carry trade to possibly explain why the market did not retain the highs it reached early in the trading day.

As explained in my Wall Street Weekly report published this past Saturday, the dollar has turned into the major funding source of a lot of the big traders in the market these days.  Noriel Roubini, the infamous ‘Doctor Doom’ who predicted the market collapse, published a piece today saying that the dollar carry trade is the next major disaster/bubble.  Roubini claims that the real interest rate (the current rate minus the inflation rate) is allowing these carry trade cowboys to borrow money to invest at MINUS 10 to 20 percent.  This negative real interest rate source of funding is just too good to resist and the market is piling this trade on causing it to become WAY overcrowded.  Roubini claims that when the bell sounds for the trade to end, the rush to unwind the overcrowded carry will collapse the market.

Let’s get back to why the market could not hold its high today – The Fed is meeting tomorrow.  Looking at the chart for the PowerShares US Dollar Bull ETF (NYSE: UUP) you can see the dollar started to collapse right before 10 a.m., and accelerated right after.  The carry trade was getting ramped up with traders going to the cash box, shorting the the dollar, to buy stocks.  Problem is, tomorrow The Federal Open Market Committee meets to discuss interest rate policy.  So after a nice run, the cowboys let their fear of losing money overcome their greed and they unwound what they just jumped into.  Remember, the event that sparks this carry trade to unwind is going to catch a LOT of people wrong sided on the dollar and then the stampede for the door will be begin.

The Fed, which has to have noticed what is going on with the dollar, will most likely keep rates the same.  Put yourself in the Fed’s position – watching this carry trade is like watching kids play with matches.  The Fed may just want to release a statement that, even though they are maintaining lower rates, they are concerned about inflation, etc…  Will the Fed see this as time to jawbone the dollar up and deflate that bubble a little before it gets too full?

The dollar drop caused Nymex crude to rally $1.13 a barrel (+1.47%, $77.91, 4:40 p.m.) and New York Spot Gold gained $14.90 an ounce (+1.43%, $1,059.60, 4:50 p.m.).  The Gold ETF Chart (NYSE: GLD) is starting to set up nicely for a run to new highs for gold, with $1,100 possible by the middle of November.  The dollar ETF (NYSE: UUP) is starting to look like the bottom it made two weeks ago could be retested soon, which is good news for the Dow and the carry trade cowboys.  The wild card – The FOMC.

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