Wall Street Wrap

Dollar Climbs, Market Drops

By Robert Perrego, at 4:41 pm on December 8th, 2009

The ‘Dixie’, the US Dollar Index Future Spot Price or the ‘DXY’, climbed today causing  short covering by the carry trade cowboys.  This caused these players, that are long ‘risky’ assets such as stocks and commodities, to sell.  This selling drove the Dow Jones Industrial Index down 104.14 points (-1.00%, 10,285.97) and to close at its lowest levels since November 11th.  The DJIA, which has been in a sideways trading range between 10,300 and 10,500 for the last 15 trading days, is now showing weakness and the chart is breaking down.  The weakest stock in the DJIA today was Bank of America Co. (NYSE: BAC) which dropped 3.02% (-$0.48, $15.41) and the only stock that was up of the 30 was Verizon Communications Inc. (NYSE: VZ) which gained 14 cents (+0.42%, $33.39).

The S&P 500 dropped 11.31 points (-1.02%, 1,091.94) and the Nasdaq 100 lost 10.92 points (-0.61%, 1,772.73).  The tech heavy Nasdaq held up best and also has the strongest looking chart by not looking like it is about to break down.

Both the Dixie and the PowerShares DB US dollar Index ETF (NYSE: UUP) traded up today with the Dixie gaining 0.60% (+0.45, 76.22) and the UUP up 0.48% (+$0.11, $22.59).  For months the dollar has been declining gradually and with U.S. short term interest rates near zero, the trade has been to short the dollar and take those proceeds to buy stocks and commodities.  With the short covering in order to lock gains in on their short trade, these market players have had to cover the other side of their trading ledger and sell what they bought – stocks and commodities.  Today, this has caused a broad based sell off in stocks.  Also, with Greece getting their bond rating cut and rumors of a re-evaluation of the U.S. and U.K. rating, a flight to quality caused buying in the dollar.  You need to own dollars first to buy Treasuries so when a flight to Treasuries occurs, the dollar strengthens.  Add this all up and it spells bad news for stocks.

In a backwards way, a speech by President Obama strengthened the market for a brief period today as he stated that he wanted to use TARP funds for loans to small businesses, among other spending programs, and what basically amounts to a second stimulus act.  The original legislation for the TARP involved having all unspent monies and repaid funds to go directly back towards paying off the national debt, which would strengthen the dollar.  Obama’s indication that debt will not be paid by these repayments and unused funds, caused the dollar to weaken and the market moved higher.  Obama actually said the nation must continue to “spend our way out of this recession”.  This is how the market is backwards these days as a stronger dollar was traditionally thought to be bullish for stocks.  With the carry trade involving the dollar itself, a stronger dollar is bearish these days.

New York Spot Gold got hit for 2.44% and dropped $28.20 an ounce to trade at $1,129 at 4:19 p.m.  Gold has always traded inversely to the dollar but now this effect has been magnified in its effect as gold is one of the ‘risky’ assets bought by the carry trade cowboys.  The SPDR Gold Shares  (NYSE: GLD) started a steady decline today at about noon and traded lower for the next three hours as there was constant selling pressure.  This steady sell-off took the GLD from $112.90 to $110.21 before rebounding to $110.93 on the close.

Oil continued its sell-off with Nymex crude dropping $1.31 a barrel to $72.60 (-1.77%, 4:15 p.m.).  Nymex crude has now steadily traded down from $78 to $72.60 in the last 5 trading days.

Other commodities were weak as well with the iPath Copper Exchange Traded Notes (NYSE: JJC) dropping 1.51% (-$0.664, $43.198), the Market Vectors Steel ETF (NYSE: SLX) down 2.79% (-$1.66, $57.82), the Market Vectors Coal ETF (NYSE KOL) losing 2.03% (-$0.69, $33.25) and the PowerShares DB Agriculture fund (NYSE: DBA) off 0.49% (-$0.13, $26.03).

Tags: , , , , , , , , , , , , , , , , ,

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.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

News

Wall Street Wrap – Apple and the Dollar Jump, Caterpillar Creeps Back

By Robert Perrego, at 5:21 pm on October 20th, 2009

Apple Inc. (NSDQ: AAPL) handily beat earnings yesterday after the close and its stock jumped in thin after hours trading to as high as $204 a share.  Apple posted earnings of $1.82 to the $1.42 (analyst’s estimate), AND beat on revenues by $670 million, which is impressive as few companies are beating on both the top and bottom lines these days. We can give Apple the hat-trick and tip our hats here as not only did they beat analysts estimates for revenue and earnings, but they beat last years Q3 revenues ($7.9B) as they are expanding their business in a shrinking economy.

During the regular trading session today, Apple closed at $198.76 (+4.68%, +$8.90).

Dow Jones component Caterpillar Inc. (NYSE: CAT) had a good day after a surprisingly large earnings beat coming in at 64 cents a share vs. the analysts expected 6 cents.  This does not say a lot for the estimates put out by Wall Street.  The relative valuation of Caterpillar is getting a bit high if you look at the fact that they made $1.41 a share in Q3 2008 when the stock was trading in the mid 60’s.  Today, the company posts 64 cents and the stock closed at $59.61 (+3.04%, +$1.76), with a tax benefit that once you strip it out, the earnings would be about 43 cents a share.  On a relative P/E basis this makes the company 3 times as expensive today.

Overall the market was down as the Dow dropped 50.71 points (-0.50%, 10,041.48) and the S&P 500 dropped 6.85 points (-0.62%, 1091.06).  The Nasdaq 100 hung in there tough, dropping less than a point down only 0.49 (-0.02%, 1756.19) aided by Apple’s strength.  The weakest sectors today were consumer cyclicals down 1.37% and finance down 0.84%.  The tech sector was one of the few bright spots adding 0.32%.

Overall, the market was down as the recent trend of the market going opposite the dollar continues.  As mentioned in my Wall Street Wrap yesterday, the action in the dollar has been dictating where commodities and the stock market itself trade.  As the dollar gets weaker it takes more of them to buy a stock and it seems this is causing ’stock inflation’.  The PowerShares Bull Dollar ETF (NYSE: UUP) jumped 0.44% today (+$0.10, $22.46) as the market sold off, and the peak in intra-day trading of the UUP today at 11:45 a.m. (+0$0.16) was pretty close to the bottom in the Dow which was at 12:05 p.m. (-98.77).

Everything seems to be hinging on the dollar lately as Barron’s called for Bernanke to raise rates this weekend with their cover story.  The U.S. Government has pumped the economy liquid with dollars in response to the credit crash, and now with the dollar dropping, the amount of coverage this issue is getting seems to be non-stop.  Is all this media coverage and debate about the dollar, and what the Fed should do now, causing this liquidity and dollar issue to be so center stage that its impact is being overstated?  The stock market itself, it seems, is taking its cues from the dollar, where in the past commodities and commodity related stocks traded off the dollar through the inflation linkage.  Now, with the markets trading like a proxy inverse of the dollar, is this an implicit admission of the existence of ’stock inflation’ and of yet another bubble being pumped into the market via massive cash liquidity?

Earnings Scheduled for Tomorrow:  (AFFX, -0.09, after the close), (APD, 1.12, before the open), (ADS, 1.34), (MO, 0.47, bto), (AMGN, 1.27, atc), (CTXS, 0.41, atc), (CLB, 1.13, atc), (DST, 0.92, atc), (EBAY, 0.37, atc), (LLY, 1.02), (FCX, 1.35, bmo), (GENZ, 0.44), (KEY, -0.41, bmo), (KMP, 0.37), (NE, 1.53, atc), (PJC, 0.40, bmo), (STJ, 0.58), (BA, -2.12, bmo), (SWK, 0.62, bmo), (USB, 0.27, bmo), (WFC, 0.36, bmo)

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

News

Wall Street Wrap – Dow Jones New 2009 Highs, Freddie and Fannie called Worthless

By Robert Perrego, at 5:15 pm on October 19th, 2009

The Dow Jones Industrial Average, The S&P 500 and the Nasdaq 100 all traded new 2009 highs today as the market posted solid gains on the first trading day of the week.  Keefe, Bruyette & Woods (NYSE: KBW) were not pulling any punches as they came out saying Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) were worthless, as in putting a big ‘$0.00′ valuation on the stocks of the GSE’s.  Fannie and Freddie’s stock got hit on such a dire prediction, dropping 22%  each (FNM, -$0.32, $1.14), (FRE, -$0.37, $1.35).  The only good news, if you can call it that, is that the stocks are so low priced that unless you were holding a dump truck full you didn’t lose that much money.

The Dow traded as high as up 122 points midday and closed up 96.28 (+0.96%, 10,092.19) with this being a new 2009 high close.  The S&P 500 followed suit gaining 10.23 points (+0.94%, 1,097.91) and traded 1,100 today before backing off.  Not to be left behind, the Nasdaq 100 closed at 2009 highs up 17.36 points (+0.99%, 1756.68).  The leading sector was energy today, up 1.59% as oil topped $79 a barrel.  The finance sector ran a close second today up 1.45%.

The debate about the weak dollar is heating up, with Greenlight Capital Hedge Fund Manager David Einhorn saying they see a currency collapse coming and Fed Chairman Bernanke warning about the U.S. budget deficit.  Einhorn predicted the Lehman collapse and he is not just blowing hot air on this prediction, as he said the fund has placed bets on long term interest rates going a lot higher in Japan and buying physical gold.  Over the past few months we have seen the market move higher each time the dollar dropped as U.S. stocks are valued in dollars.  This functions basically the same way the weak dollar pushes up the price of gold and oil, as when the dollar gets weak you need more of them to purchase the same perceived value of a stock.  You might think this good, but sooner or later a tipping point will be reached after which the inflated market, yes a bubble again, is very susceptible to being ‘popped’ and after that a fast drop.

The PowerShares Dollar ETF (NYSE: UUP) closed at a 2009 low, dropping 0.48% (-$0.11, $22.36).  This caused the weak dollar inflationary effects that boosted oil, gold, stocks and pretty much the price of everything.  Nymex crude was last seen trading at $79.25 a barrel (+$1.08, +1.38%, 4:13 p.m.)  Copper soared higher today as China’s bullish economic growth data caused the iPath Copper ETN (NYSE: JJC) to gain 4.01% (+$1.575, $40.765).  The Spdr Gold ETF (NYSE: GLD) closed within 3 cents of its all time high close gaining 41.05 (+1.01%, $104.23).  New york Spot Gold was up $11.10 (+1.05%, $1,063.90, 4:55 p.m.)

Hedge fund traders on TV were heard saying that the short-the-dollar-long-gold trade, was as crowded a trade as they had ever seen.  When you get a whole bunch of traders leaning in the same direction they start watching each other and it turns into a game of high stakes chicken.  If that trend they are all betting on going one way starts to even smell like it might reverse, you get a very fast unwinding and a rapid short squeeze as traders get whip-lashed trying to reverse all their positions as the same time.

Consumer tech product superpower Apple Inc. (NSDQ: AAPL), reported after the bell today and beat expected earnings by 40 cents ($1.82 vs. $1.42) and, just as importantly, beat their revenue estimates by $670 million ($9.87B vs. $9.2B).  Apple was last seen trading $203 .30 in the after market, after closing up $1.81 today at $189.86.

Earnings of note tomorrow: AYE-before market open, ADM-bmo, BMC-after the close, SAM-atc, CHD-bmo, CVS-bmo, ED-bmo, DHI-bmo, DVA-atc, DBD-bmo, DUK-bmo, ERTS-atc, FCN-bmo, IT-bmo, HNT-bmo, KND-atc, KFT-atc, MGIC-bmo, MVL-bmo, NI-bmo, ONXX-atc, PPL-bmo, PGN-bmo, PL-atc, SPG-bmo, SE-bmo, THC-bmo, TIE-bmo, TM-2 pm, UNM-atc, AUY-atc.

NOTE:  The large number of electric utilities reporting tomorrow.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

News

Wall Street Wrap – Goldman upgrades the Big Banks, Dollar Down, Gold Up

By Robert Perrego, at 4:53 pm on October 5th, 2009

Goldman Sachs Group Inc. (NYSE: GS) upgraded Wells Fargo & Co. (NYSE: WFC) and Comerica Inc. (NYSE: CMA) to buy this morning and added Capital One Financial Corp. (NYSE: COF) to its conviction buy list, sparking a rally in the financial and banks and the market as a whole.  Not all banks are a go for Goldy as they are recommending people steer clear of the regional banks and buy the big banks on a valuation basis.  This bullish turn by Goldman comes right at the kick-off of Q3 earnings season, and the big question is whether or not top line revenue numbers will increase or if earnings will hold just by firing more people.  Capital One jumped 8.25%, Wells Fargo was up 6.88% and Comerica added 4.16%, while Goldman, which pretty much helped itself by upgrading the sector they are in, gained 3.81%.

Overall the Dow gained 112.08 points (+1.18%, 9599.75) with the S&P 500 the strongest index up 15.25 points (+1.48%, 1040.46) while the Nasdaq 100 brought up the rear adding 13.15 points (+0.79%, 1675.64).

The G7 finance ministers met in Istanbul and what was surprising is not what they said, but what they did not say.  Over the past few months everyone from the Chinese to the Russians to the IMF have called the dollar out on weakness, massive U.S. budgetary deficits and high debt levels.  The sudden silence about the dollar was deafening.

Looks like the finance ministers have decided to stop bringing up the dollar subject and hope no one notices it drop or pile on the short side of that trade.  All these world leaders and officials do is keep complaining about a weak dollar and all that does it make it weaker, and make dollar shorts a lot of money.  These financial super-brains may now have decided that the ‘ostrich’ approach will do better than the whining and complaining approach.  Complaining doesn’t seem to do any good when the Administration in the White House seems to do nothing but stay up late at night thinking up ways to spend even more dollars they do not have.

Strangely enough, our market rallies when the dollar drops as a massive game of ‘beggar thy neighbor’ is about to start in worldwide trade.  There is going to be a huge fight for customers worldwide and a cheaper dollar puts us back in the game.  This is how international finance and currency markets work to balance out problems like, say, the Chinese and Japanese having trillions and trillions of our dollars.  The dollar drops and they buy more stuff from us and we get the dollars back.  Then of course there is that one nasty problem with a weak dollar… commodity inflation!

New York Spot Gold was up $14.50 an ounce trading at $1,016.80 at 4:12 p.m (+1.45%).  Looking at the gold charts you see a breakout waiting to happen.  Looking at the PowerShares DB Dollar Bull ETF (NYSE: UUP) chart and you see weakness and the dollar rolling over after hitting resistance.  The dollar chart looks ready to break down. The dollar cracks, and it could this week, and gold is going to take out the all time highs in a flash.  Gold is 1.7% from its all time high while the dollar ETF is 3.4% from its all time low.  This means the dollar does not even have to make a new low in order for gold to take out the highs.  If the dollar does make a new low, look out.

Other commodities: Oil ETF (NYSE: USO) up 0.86%, copper ETF (NYSE: JJC) up 1.98%, steel ETF (NYSE: SLX) up 3.83%, natural gas ETF (NYSE: UNG) up 6.23%, coal ETF (NYSE: KOL) up 3.67%, agricultural ETF (NYSE: DBA) up 1.01%.

What will impact the market now?  Some bad economic numbers and job losses you say?  We got those all week last week and the market rallied today.  The market is getting numb, even to watching a couple hundred thousand jobs walk out the door every month.  The story will be in the dollar and the top line revenue numbers during this earnings season.  Alcoa, Inc. (NYSE: AA) is the first Dow component to report on Wednesday.  They are expected to lose 12 cents a share on revenues of $4.46 billion.  My guess is they miss both numbers.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

« Older Entries
Newer Entries »