News

Doubting Thomas Dissents, iPad iDisappoints?

By Robert Perrego, at 5:46 pm on January 27th, 2010

The Federal Open Market Committee announced that they would keep interest rates at their historically low ‘0-0.25%’ level and also stated that rates would remain low for an “extended period of time.”  Doubting Thomas Hoenig, the Kansas City Fed President, was the dissenting voice but not on the level of interest rates, just on the promise to keep interest rates low.  Hoenig ‘doubts’ the economy is still weak enough to keep the pledge to keep interest rates low for an extended period of time.  This one dissenting vote was enough to send the markets higher after the announcement as the Dow Jones Industrial Average rallied from 10,150 before the release to 10,236.16 (+0.41%, +48.87) at the close.

The S&P 500 experienced a similar turn of fortune on The Fed announcement rising to close at 1,097.50 (+5.57, 0.50%) and the Nasdaq 100 climbed to 1,818.90 (+0.83%, =15.04)

One possible reason why The Fed kept the promise to keep rates low for an “extended period,” is that the U.S. Senate will vote whether or not to confirm Bernanke to a second term as Fed Chairman tomorrow.  While politicians may worry about interest rates and inflation, right now they are more worried about votes and jobs, so losing this ‘extended’ language from the statement might make Ben’s reappointment a bit less certain.

Click ‘here’ to see the text of the FOMC announcement.

Treasury Secretary Timothy Geithner got grilled by members of Congress about his role in how the whole bailout of American International Group (NYSE: AIG) and Goldman Sachs Group, Inc. (NYSE: GS) was handled.  The heart of the issue that members of the House Committee on Oversight and Government pushed was whether or not Geithner made decisions with the best interests of the taxpayer in mind, or the best interests of Goldman Sachs.  Goldman Sachs was the biggest recipient of funds from AIG, and these funds were supplied by the U.S. taxpayer through the TARP fund.  Whether these politicians (and yes, I do not trust any politicians) were stumping and posturing for votes in this coming November’s elections, or whether they actually thought the bailout could have been handled differently, and at a lower cost to the taxpayer, no one knows.  I would say that Geithner and former Treasury Secretary Hank Paulson know a substantial amount more about banking, derivatives and the financial mess we were in than the lawyers and popularity contest winners we call politicians.  Who do you trust more, bankers or politicians?

Steve Jobs rolled out the new Apple Inc. (NSDQ: AAPL) iPad to some underwhelming reviews and this one review that claims it is ‘culture-changing.’ I have an iPhone and its great, but I do not see the reason to buy something that is half the way between my phone and a laptop (or netbook) for $500 to $1,000.  Whether or not the public buys this thing like they bought other Apple products, investors did not like it – until they heard the price!  Apple stock dropped as Jobs unveiled the iPad and you could practically hear the “that’s it?” from stock traders.  When Jobs announced that the lowest cost model would be $499 the stock ripped and closed the day up $1.94 at $207.88.  For Tracked.com’s take on Apple’s new gizmo see:  iPad or iFad?

A Tale of Two Dow Stocks today brings us Boeing Co. (NYSE: BA) and their biggest one day stock jump in over a year on stronger than expected earnings.  Boeing rose $4.22 or 7.31% after reporting $1.77 a share in profit ($1.36 expected) after losing 12 cents a share a year earlier.  The stock you didn’t want to be in today was Caterpillar Inc. (NYSE: CAT) as their earnings announcement came in above expectations ($0.36 vs. $0.28) but their year-over-year comparisons were poor ($0.36 vs. $1.08) and sales in the fourth quarter declined 39% to $7.9 billion.  Just over two weeks ago Caterpillar stock ripped to its highest level since September of 2009 as China announced a strong economy and traders bet Caterpillar was doing brisk business selling them tractors.  This price and volume spike from January 11th has a lot of people disappointed in today’s results from the CAT as the stock dropped $2.41 to $53.44.

Tomorrow we get the vote on whether or not Bernanke keeps his job and Durable Goods Orders (1.6% exp.) and Jobless Claims (440k) at 8:30 a.m.

First look at the companies expected to report tomorrow show that it is airlines day with ALK, JBLU and LCC reporting.  Also, keep an eye on the transportation index as airlines are part and KSU and ABFS are also reporting.

Selected earnings reports for Thursday:

MMM 1.21, ADPT -0.04, MO 0.40 before market open, AEP 0.46, AMCC 0.04 after the close, AZN 1.52 bmo, T 0.51 bmo, BLL 0.71 bmo, BAX 1.03, BDX 1.20 bmo, BMS 0.34 bmo, BCR 1.34 atc, CA 0.42, CP 0.83 bmo, CAH 0.46 bmo, CELG 0.62 bmo, CB 1.46 atc, CL 1.18, CY 0.11 bmo, DHR 1.03, D 0.60 bmo, EK 0.18 bmo, LLY 0.92, BMY N/A, F 0.26 bmo, BEN 1.47 bmo, GNW 0.10 atc, HP 0.50 bmo, JNS 0.19 bmo, JBLU 0.03 bmo, JNPR 0.26 atc, KSU 0.29 bmo, KLAC 0.27 atc, LLL 1.86 bmo, LEG 0.24 atc, LMT 1.99 bmo, MXIM 0.18 atc, MKC 0.91, MSFT 0.59 atc, MOT 0.08 bmo, NOK 0.28 bmo, OXY 1.24, OXPS 0.26 bmo, OSK 1.00 bmo, POT 0.78, PG 1.43, RMBS -0.26 atc, RTN 1.23 bmo, COL 0.73 bmo, SNDK 0.69 atc, SXE 0.47 atc, SY 0.69 bmo, SNV -0.59 atc, TXT 0.09 bmo, EL 1.19 bmo, TWC 0.88 bmo, TYC 0.59, UA 0.25 bmo, LCC -0.50, XEL 0.36 bmo.

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Wall Street Wrap

Steel Jumps Higher and the FOMC Minutes

By Robert Perrego, at 4:33 pm on January 6th, 2010

The commodities surge continued from last year and steel led the charge today.  Fueled by a comment from Goldman Sachs Group Inc. (NYSE: GS) stating that steel should be up 8% in 2010, the Market Vectors Steel ETF (NYSE: SLX) climbed 2.19% (+$1.42, $66.14) and closed at its highest level since September 22, 2008.  Worthington Industries, Inc. (NYSE: WOR), a steel manufacturer and processor, blew away estimates this morning posting 29 cents of profit vs. the expected 9 cents, and the stock gained 20.5% (+$2.85, $16.73) on the day.

The Federal Open Market Committee released the notes from their last meeting at 2 p.m. today and the market instantly reacted.  Gold jumped to new highs on the day as the minutes were released and the market became more aware that The Fed is worried about the economy after government stimulus ends.  The coming end to The Fed’s purchase of mortgage bonds has some worried as Jim Cramer commented on CNBC today that once these purchases that are supporting the mortgage bond market end, he sees mortgage rates moving higher.  Another wave of resets for adjustable rate mortgages are expected soon and the market is afraid that this added pressure to the housing market, at a time when the Fed stops supporting it, may cause a double dip in housing.

The Dow Jones Industrial Average floated around unchanged all day and closed up a 1.66 points (+0.01%, 10,573.68) while the S&P 500 also had no direction (-0.29, -0.03%, 1,136.16).  The Nasdaq 100 lost 10.01 points (-0.53%, 1,878.42).

The Volatility Index (VIX) is trading at levels not seen since the pre-Lehman days indicating a lack of fear in the market.  For the past few months the unemployment reports have been getting ‘less bad’, which is a trend in the right direction and market players are less worried about the economy as a whole.  This complacency could be signaling a top in the market as the market loves to disappoint.  The trend of the VIX could also continue and the market could continue to climb, but, just when you think it’s safe to go back in the water…

Looking at today’s chart of the SPDR Gold Trust (NYSE: GLD) shows two spikes in volume and price action.  At 10 a.m., the ISM Non-Manufacturing Index was released and the GLD moved higher on high volume from $110.53 to $111.40 within thirty minutes.  The ISM number came in at 50.1 vs. the 50.4 expected.  At 2 p.m., on the release of the FOMC minutes, the GLD once again jumped higher moving from $111.35 to $111.65 in five minutes on high volume. The GLD closed at $111.51 (+1.64%, +$1.81) after trading at its highest level since December 16th.

With the steel move today possibly igniting an interest in the commodity space again, gold gained $20.40 an ounce (+1.83%, $1,137.60, 4:11 p.m.) while most non-commodity stocks hovered around unchanged all day.

Nymex crude traded up $1.27 a barrel to levels not seen since the fourth quarter of 2008.  Nymex crude was below $70 a barrel briefly in mid-December and has climed to the current level of $83.04 (4:02 p.m.) in under a month, a move of over 18%.

The moves in gold and oil came amid a falling dollar that opened higher in the morning and traded off all day long, with the PowerShares DB US Dollar Index (NYSE: UUP) closing at its lowest level since December 16th.  The correlation between the dollar and commodities remains very much intact, as shown by the action in gold and oil.

Tomorrow the Monster Employment Index is released at 6 p.m. and the Weekly Jobless Claims at 8:30 a.m. (450K expected).

There is a laundry list of bill, note and bond announcements tomorrow with reports on the 3-Month Bill, the 30-Year Bond, the 6-Month Bill, the 52-Week Bill, the 3-Year Note, the 10-Year Note, the 10-Year TIPS, and Treasury Strips expected throughout the day.  That is a lot of debt reports.

Also, two regional Fed Presidents are expected to speak, with James Bullard of the St. Louis Federal Reserve speaking at the Shanghai Jiao Tong University Forum and Kansas City Fed’s Tom Hoenig speaking at the Central Exchange in Kansas City.

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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 – 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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News

Market Wrap – The Financial Risk Team Zombies lead the Market lower.

By Robert Perrego, at 5:14 pm on August 11th, 2009

Looks like we have a new trading group the Market players are toying with hereby named the ‘Financial Risk Team Zombies’.  The ‘Zombies’ rose from the dead last Wednesday and had huge gains together.  (August 5 Market Wrap for more info…)  First let’s define the team;  Meltdown epicenter stock American International Group (NYSE: AIG) is the Captain of the team (move over Derek Jeter) with MBIA  Inc. (NYSE: MBI), CIT Group Inc. (NYSE: CIT), MGIC Investment Corp (NYSE: MTG), Radian Group Inc. (NYSE: RDN) and honorary members Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE) and Citigroup inc. (NYSE: C) rounding out the team.

Most all these stocks traded up between 20 and 63% last Wednesday as traders jumped on these beaten down stocks and ran their momentum all day.  The ‘Zombies’ have been very active and traded high volume over the last week as they gained the focus of traders looking for volatility and profits.  While no one likes a boring market, these stocks are like playing with fire lately.

The Dow Jones dropped 96.50 today (-1.03%, 9241.45) and these stocks led the drop.  AIG dropped over 13%, MBI down 13%, CIT down 19%, Citi down 6%, MTG down 10%, etc…  With this same group of names running up big one day and then all getting hit another a few days later it looks like pools of money (most likely hedge funds) have this ’sector’ identified as active and profitable stocks to trade.  So what does this mean?  Considering all the chatter about a market top being put in after last weeks rally this means that traders are dumping the high volatility names to cut back on their risk exposure.

Looking at the sectors shows that finance led the losers dropping 2.75% with energy second down 2%.  Stocks were pretty much down across the board with only the bio-techs and chemical companies showing any strength at all.

New York Spot Gold was flat, the dollar was up slightly and NYMEX crude dropped $1.76 to $69.36 a barrel.

Productivity jumped 6.4% as employers tightened their belts and cranked out more product per factor of input.  When I hear numbers like this the first thing I think is that employees nationwide are worried about their jobs and employers are putting the screws to them to work harder.  Of course all the layoffs and trimming down of all non-essential employees and functions are creating lean, mean and more productive companies, but it does not hurt to have your employees scared of pink showing up in the pay envelope as added motivation.

Tomorrow at 2:15 p.m. The Fed will tell us they are not raising interest rates from zero to, well, anything.  Bernanke still wants his job and the economy is still losing jobs at way too fast a rate.  Worry points such as rising oil prices and a heavy Treasury auction schedule are constantly debated on CNBC as forces that could derail our ‘economic recovery’.  Call me dismal but I do not think much of this recovery – all we have seen recover really is a stock market that probably got hit too hard on the downside so it had some pop room to the upside to run.  We are still down some 34% from the top of the market, the U.S. economy has shed a full 1/9th of its GDP and people are still getting fired at a rate of about 5.7 per minute – 24/7.  That is one person fired or laid off every 10.5 seconds.  Sound like a recovery to you?

We had a good reception to the $37 billion 3-Year Note treasury Auction with a bid-to-cover ratio of 2.89 (average lately about 2.54).  As I wrote in a previous Market Wrap, I think large holders of our debt are still interested in the short maturities as they are much less risky but tomorrow we have a 10-Year note auction and then 30-Year Bonds on Thursday.  How these auctions go will tell us a lot about where interest rates will be soon.

So the times to watch tomorrow are 1 p.m. for the Ten Year Auction and 2:25 p.m. for the Fed announcement.

Technically speaking the charts all look to be pointing down and a quick look at the Dow shows moderate support at 9100 with a lower stronger support level at 8800 formed not only by tops but also have the 200 and 50 EMA moving averages converging here.

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