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

Market Strong on ISM Number

By Robert Perrego, at 5:37 pm on February 1st, 2010

The Dow Jones Industrial Average has lost 6.1% over the past two trading weeks and closed out last Friday right on a support level.  Futures were up in the pre-market and a favorable report from the ISM Manufacturing Index (58.4 vs. 55.0 expected) at 10 a.m. powered the market higher as the DJIA climbed 118.20 points (+1.17%, 10,185.53).  Apple Inc. (NSDQ: AAPL) gained $2.67 (+1.38%, $194.73) after a two day slide at the end of last week that sliced $15.82 (7.61%) off its stock price.  It seems that the sellers in the tech space were busy hitting Amazon.com (NSDQ: AMZN), as the recent dust-up with Macmillan brought the sellers out in force.  The largest online retailers stock was down $11.59 at its low but rebounded to close down only $6.54 (-5.21%, $118.87)

The S&P 500 rose 15.32 points (+1.43%, 1,089.19) and the Nasdaq 100 gained 19.68 points (+1.13%, 1,760.72)

Commodities were strong as the dollar sold off.  What we have most likely been seeing over the last couple of weeks is the unwinding of the dollar carry trade.  The very low short term interest rates in the U.S. right now has made shorting the dollar and using those funds to buy stocks and commodities a very popular, and profitable trade since March 9th of 2009. As the dollar strengthened on gradually improving economic conditions domestically, the shorts started to get squeezed, bought their short positions in and then had to sell some stocks.  As the dollar has reached a short term peak and the technical picture points to it selling off for now, these same ‘carry trade cowboys’ may be once again shorting the dollar and buying into the stock market.

New York spot gold ripped higher by $24.60 an ounce (+2.28%, $1,104.80, 4:40 p.m.) as the dollar declined, optimism rose about the global economy and on comments by St. Louis Federal Reserve President James Bullard that deflation was no longer a risk for the U.S. economy.  Eliminating the possibly of deflation makes the probabilities of the economy experience inflation increase, and many economists have said that keeping the current near zero interest rates this low for long could even result in hyper-inflationary conditions in the next few years.  This is not lost on the investing public as all one has to do to see an example of the belief that gold is an inflationary fighting vehicle, is to turn on any financial television station and count the number of advertisements about buying or selling gold you see per hour.

Inflation expectations also increased as President Obama unveiled the 2011 budget with a whopping $1.56 trillion deficit.  Last week Obama was promising a spending freeze in 2011 during his State of the Union speech and this week we have the biggest spending budget in history and a record projected budget deficit.  There oughta be a law!  Actually I think there is one, but they passed another one exempting all the politicians in Washington D.C. from the first one.

Black gold had an even stronger day than yellow gold as Nymex crude gained $1.97 a barrel (+2.70%, $74.86, 4:35 p.m.) on optimism about the world economy, dollar weakness and cold weather in the United States.  The Market Vectors Steel ETF (NYSE: SLX) rose 6.01% (+$3.28, $57.79) after getting sold off for almost 20% over the last three trading days.  Sugar ticked a 29 year high ($30.40) on the Intercontinental Exchange, the iPath Dow Jones-UBS Copper ETF (NYSE: JJC) was up 2.10% (+$0.87, $42.38), the Market vectors Coal ETF (NYSE: KOL) gained 3.22% (+$1.06, $33.91) and the United States Natural Gas Fund (NYSE: UNG) was up 5.26%, (+$0.49, $9.80)

Tomorrow we get the number for Motor Vehicle Sales (8.37 M expected), the ICSC-Goldman Store Sales at 7:45 a.m., the Redbook at 8:55 a.m. and the Pending Home Sales Index at 10 a.m.  Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee on the fiscal year 2011 budget at 10 a.m. and at the same time Paul Volcker testifies on regulations to limit high-risk bank activities before the Senate Banking Committee.

Selected earnings estimates for Tuesday, February 2, 2010:

A quick scan will show you that we have a decent number of oil companies that are all reporting tomorrow – BP, MRO, SU, TSO and TDW.

ACE 1.93 after the close, AFL 1.15 atc, ADS 1.63, AMB 0.31 before market open, AXE 0.52 bmo, ADM 0.72 bmo, ADP 0.58 bmo, BEAV 0.31 bmo, BP 1.51 bmo, CMI 0.76, DHI -0.14, bmo, EMR 0.42 bmo, ETR 1.55, IRF -0.08 atc, JDSU 0.09 atc, LXK 0.63 bmo, MRO 0.51, MEE 0.27 atc, MET 0.95 atc, NWS atc, PBG 0.43 bmo, PRGO 0.66 bmo, SU 0.36 bmo, TSO -0.92 atc, DOW 0.11, HSY 0.60 bmo, SMG -0.83 bmo, TNB 0.63 bmo, TDW 1.20 bmo, UPS 0.74 bmo, UNM 0.64 atc, VRSN 0.34 atc, WHR 1.32 bmo.

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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

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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News

Market Wrap – Berkshire gets Downgraded at a Possible Top

By Robert Perrego, at 4:42 pm on August 10th, 2009

Berkshire Hathaway Inc. (NYSE: BRK.A) has run up from $85,125 a share on July 10th to a high at $108,450 on Friday for a 27% gain in one month.  Today the stock got hit for 3.79% on a downgrade as the entire market sold off from last week’s rally.  Maybe it was just a fear of heights or the Bulls just got tired (most likely both) but the Dow Jones was down as much as 80 points intra-day and rallied back to close down only 32.27 points.  Berkshire lost $4,100/share (-3.79%, $104,000).

Berkshire Hathaway is Warren Buffet’s holding company for many different businesses including Coca-Cola (NYSE: KO), American Express (NYSE: AXP), Johnson & Johnson (NYSE: JNJ) and wholly owned insurer Geico of the marketing famed English accented gecko lizard.  While a large percentage of Berkshire is in financials of some type, Warren has bought a wide variety of companies based upon his value oriented stock picking method.  Berkshire can be watched as a proxy on the market and especially the finance sector which has been particularly strong as of late.  On the same note – when someone goes out and downgrades Berkshire it is best to pay attention.

What may have analysts and traders spooked is that The Federal Reserve is meeting tomorrow.  While it is highly unlikely that the Fed raises rates tomorrow (it would actually be political suicide for Bernanke right now), the statements accompanying the “we have decided to leave rates alone” could move the markets substantially.  A statement that sounds something like this; “Even though the economy remains weak The Fed now regards inflation a more significant future threat” would move the markets.  This type of statement would mean rate hikes are coming and the Treasury market will begin to react immediately pricing a rate hike in which means interest rates will rise (cost of money) and most likely a sell off in stocks would result.  No trader wants to be caught too long of stock with such an event being possible.  Right now credit is a long lost memory to a lot of companies and small businesses and if the cost of this credit is increased that loan becomes an even more distant dream.  This is a two day meeting and The Fed announces their decision on Wednesday at 2:15 p.m.

Inflation is a worry as Washington D.C. has been spending an awful lot of money lately and on top of that they have plans to spend a whole lot more.  I would think that when you are up to your neck in credit card debt and mortgage bills, the roof is leaking and the boiler just blew, not a lot of rational people would be out shopping for a new car.  To pay for all this and the ‘new car’, Treasury Secretary Timothy Geithner asked congress to increase the Federal Governments debt ceiling.  I guess $12.1 trillion is not a big enough credit card for the new Administration.  All this extra debt and dollar bills is what is worrying the Fed as far as that inflation thing is concerned.

The Dow Jones Industrials dropped 32.12 (-0.34%, 9337.95) but did recover from lower levels in the last two hours of trading.  The S&P 500 lost 3.38 points (-0.33%, 1007.10) and the Nasdaq 100 lost 9.06 points (-0.55%, 1610.43).

New York Spot Gold was down $9.50 an ounce and trading at $945.90 at 4:18 p.m. and NYMEX Crude traded flat and lost only 8 cents at $70.87.

On the sector watch consumer cyclicals got hammered for 2.03% and finance was down 1.24% with energy up 0.68%.  Consumer non-cyclicals were up 0.44% while the cyclicals were getting hit and this shows traders getting defensively positioned.

In other headlines Southwest Airlines Co. (NYSE: LUV) submitted a cash bid of $170 million for Frontier Airlines, Carl Pickens and all his hot air decided not to farm wind, State Street (NYSE: STT) finally decided, just maybe, their loan portfolio might be as crappy as everyone elses and, just maybe, they did not set aside enough in loan loss reserves.

Paul Krugman brought up the second stimulus option this morning and the talking heads on TV were all over it all day.  I am no big fan of more spending especially in light of being $12.1 trillion in debt and I am very leary of every dollar this Administration spends as the last stimulus program of some $787 billion was mostly wasteful spending and even the Congressional Budget Office (all appointed by Congress’s controlling Democrats) analysis of the first one said it would be harmful to the overall economy in the long run.  So this means we need another one?

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