The market opened under selling pressure this morning, following its cues from Asian markets which were down overnight and European markets which are lower across the board this morning. So much for the German vote of confidence on the EFSF appeasing the markets.
We have seen a small bounce in the first hour of trading after some better than expected economic reports. The Chicago PMI reading improved to 60.4 in August, well above the 54.0 consensus. And the UofM consumer sentiment reading was revised upward to 59.4 from an earlier reading of 57.8.
Still stocks are set to finish the quarter on a down note. This quarter's decline on the S&P of roughly 12% is the biggest decline since Q4 of 2008. Pretty ugly. With all of the bad news getting priced in and bearish sentiment reaching extreme levels, one has to ponder the possibility of another October bottom and some sort of year-end relief rally.
The dollar is stronger today, and that is weighing on commodities. Ag commodities are much lower today on the recent crop report. Oil prices are lower below $80.50 so far, and gold prices are also soft near $1625.
The 10-year yield has slipped back below the 2.00% level, currently at 1.92%; and the VIX is spiking another 5.5% to 41.0. It still hasn't surpassed its recent highs, but the persistent high levels in the VIX are disturbing nonetheless.
Yesterday there was a lot of chatter about the slowdown in China becoming more pronounced. China sovereign CDS prices have really been spiking lately. If the wheels come off in China, I think those who are being complacent about a recession in the U.S. might rethink their stance. We shall see.
Trading comment: The trading range for the SPX continues to coil and sets up for a breakout fairly soon. I'm worried that we have tested the SPX 1120 level 3 times now, and a fourth test might not hold. That said, if we can get to earnings season and get some positive earnings reports, that could be a catalyst to breakout over the 50-day average which has acted as resistance for the last two months. As such, I am trying to stay balanced and nimble in the interim without making any big directional bets.
long SH
30 Eylül 2011 Cuma
29 Eylül 2011 Perşembe
Obama as Demoralizer-in-Chief
So just when everyone had concluded the Chris Christie matter — saying “Great speech at the Reagan Library, but he’s not gonna run for president” — the New York Post comes along with a story that says the New Jersey governor is seriously considering a 2012 run. Apparently the Reagan Library experience had a big impact on Christie, and others. He’s now being urged to go for it by Nancy Reagan, Henry Kissinger, former president George W. Bush, and former first lady Barbara Bush.According to the Post story, even Christie’s wife Mary Pat is warming to the idea.
I don’t have anything to add to this in the way of a forecast. But it does give me a hook to weigh in on Christie’s speech. It was uplifting and inspiring. As many have commented, it was a Reagan leadership speech on exceptionalism, or “earned American exceptionalism,” as the Wall Street Journal editors put it. I agree.
There are a couple a points that I want to emphasize, though.
First, Christie gets the linkage between domestic economic growth, national security, and foreign-policy influence. This was an absolute key Reagan principle.
Reagan’s firing of the PATCO workers was heard around the world by the old Soviet Union. But it was Reagan’s tax cuts, limited government, deregulation, disinflation (with Paul Volcker), and free-trade policies that grew the economy by nearly 5 percent annually during the recovery period of the 1980s, with nearly 20 million new jobs added. That ultimately knocked out the Soviet Union. (Throw in deregulated oil prices, too. They decimated Soviet coffers.)
Second, at the Reagan Library, Christie talked about the New Jersey model, where in a tough war against government unions and teachers, divided government worked to reform the state’s pension and health benefits, cap property taxes, and hold down arbitration awards for union salaries. (Christie didn’t mention this, but he also stopped the millionaire’s tax in New Jersey.)
And while the governor said there was compromise on a bipartisan basis, and while he emphasized leadership in compromise several times in his speech, he noted that he balanced two budgets with over $13 billion in deficits without raising taxes.
So there’s compromise, and there’s compromise.
In New Jersey, Christie has set an example for the U.S. Congress. What he seems to be saying is that compromises should occur in the spending areas, with particular emphasis on entitlements and a general curbing of the public sector. That’s a strong, positive message.
Third, Christie is a growth guy. He gets that. Numerous times in the speech the governor spoke about pro-growth tax reform along with entitlement reform and free trade. He came down on the side of the entrepreneur, not the government planner. And he said he’d opt for free-market reform in education. These are important policy markers if he decides to run.
Additionally, in what may have been the speech’s toughest passage, Christie blasted President Obama for dividing the nation along class-warfare lines: “Telling those who are scared and struggling that the only way their lives can get better is to diminish the success of others . . . trying to cynically convince those who are suffering that the American economic pie is no longer a growing one . . . insisting that we must tax and take and demonize those who have already achieved the American dream . . . is a demoralizing message for America.” (Italics mine.)
That helped make the Christie speech truly superb.
American economic psychology today is depressed and dispirited. It is, in fact, demoralized. And President Obama’s contribution as a divider is a key part of this demoralization. Not the only part. There are other culprits. But a key part.
In effect, Christie has labeled Obama the demoralizer-in-chief. He is the first to do so. It was an exceptional addition to an exceptional speech.
I am not choosing sides here in the GOP primary. I am not endorsing. I am merely trying to report what I think is a very important political statement, one that should be incorporated into the various GOP campaigns and the national debate.
Governor Christie is holding President Obama responsible. No excuses. And that, by itself, is a big contribution.
(Not So) Early Look: Sigh of Relief In Germany
When the markets are volatile in the opening hour, sometimes my early post is a little late due to trading coming first. This morning I wanted to add to some hedges as I was nervous about the early gains holding.
The vote for the expansion of the EFSF was approved in Germany, which was a good sign. Some thought it might get voted down the first time, like TARP did here in the US. But Europe wasn't up all that much this morning, so I think it was the positive economic data that helped boost our markets.
Final Q2 GDP was revised upward to +1.3% from the prior reading of 1.0%. That's still sluggish growth, but it keeps the economy just above stall speed, imo. Obviously the big question for investors is the economic slowdown still ahead of us, as forecasted by things like the ECRI, stock price declines, and declines in key commodities like copper.
Pending homes sales fell less than expected at -1.2% in August. And weekly jobless claims also surprised to the upside be falling below the 400,000 level (391k).
Commodities are mixed this morning. Oil prices are higher to $82.50, while gold prices are flat near $1617. Copper prices are getting a small bounce.
The 10-year yield is hovering above the 2.00% level for a third day; and the VIX is -3% lower today, but still stubbornly close to that 40 level (39.70), signaling heightened volatility is still with us.
Trading comment: The financials were up the most this morning, so I bought some SKF just as a day-trade flier to hedge. I also added to our index etf hedges that I had taken profits on last Friday. Today is an odd day in that although the Dow is up 160 pts., the growth stocks on my screen are a sea of red. Lots of stocks are down 5-10% today, and the Chinese internet stocks are getting killed on rumors of an accounting probe.
long SKF, SH
The vote for the expansion of the EFSF was approved in Germany, which was a good sign. Some thought it might get voted down the first time, like TARP did here in the US. But Europe wasn't up all that much this morning, so I think it was the positive economic data that helped boost our markets.
Final Q2 GDP was revised upward to +1.3% from the prior reading of 1.0%. That's still sluggish growth, but it keeps the economy just above stall speed, imo. Obviously the big question for investors is the economic slowdown still ahead of us, as forecasted by things like the ECRI, stock price declines, and declines in key commodities like copper.
Pending homes sales fell less than expected at -1.2% in August. And weekly jobless claims also surprised to the upside be falling below the 400,000 level (391k).
Commodities are mixed this morning. Oil prices are higher to $82.50, while gold prices are flat near $1617. Copper prices are getting a small bounce.
The 10-year yield is hovering above the 2.00% level for a third day; and the VIX is -3% lower today, but still stubbornly close to that 40 level (39.70), signaling heightened volatility is still with us.
Trading comment: The financials were up the most this morning, so I bought some SKF just as a day-trade flier to hedge. I also added to our index etf hedges that I had taken profits on last Friday. Today is an odd day in that although the Dow is up 160 pts., the growth stocks on my screen are a sea of red. Lots of stocks are down 5-10% today, and the Chinese internet stocks are getting killed on rumors of an accounting probe.
long SKF, SH
28 Eylül 2011 Çarşamba
Stocks Look Tired After Three Day Rally
The market was nicely higher in early trading, but has already given back those early gains and is now slightly in negative territory. Yesterday the SPX rallied back up to the 1195 level before losing momentum and closing at 1175.
This mornings burst of buying came on the heels of continued hope that plans in Europe are coming together and they will get the votes needed for their EFSF bailout fund.
In earnings news, both Accenture (ACN) and Jabil Circuit (JBL) reported stronger than expected earnings and their stocks are both higher.
Asian markets were mixed overnight, while Europe has been higher this morning. The dollar is roughly flat, while commodities are mostly lower. Oil prices are pulling back near the $83 level, while gold prices are also down so far to $1641.
The 10-year yield has climbed back above the 2.00% level, but just barely; and the VIX is 1.6% higher this morning to 38.35, and remains at elevated levels indicating traders continue to expect heightened volatility levels.
Trading comment: The trading range between SPX 1120-1220 has lasted for 8 weeks now and a resolution is likely to come soon. With heightened bearish sentiment among the indicators I track, I would not be surprised to see a breakout to the upside. But with the economy slowing and continued strains in the global credit market, I'm not sure how high such a breakout would even carry us. The flip side is that the market is highly news driven in this environment, and any negative developments out of Europe could push the market back to new lows in a hurry. As such, I continue to employ a balanced approach to the market as opposed to trying to get aggressive in either direction.
long SH
This mornings burst of buying came on the heels of continued hope that plans in Europe are coming together and they will get the votes needed for their EFSF bailout fund.
In earnings news, both Accenture (ACN) and Jabil Circuit (JBL) reported stronger than expected earnings and their stocks are both higher.
Asian markets were mixed overnight, while Europe has been higher this morning. The dollar is roughly flat, while commodities are mostly lower. Oil prices are pulling back near the $83 level, while gold prices are also down so far to $1641.
The 10-year yield has climbed back above the 2.00% level, but just barely; and the VIX is 1.6% higher this morning to 38.35, and remains at elevated levels indicating traders continue to expect heightened volatility levels.
Trading comment: The trading range between SPX 1120-1220 has lasted for 8 weeks now and a resolution is likely to come soon. With heightened bearish sentiment among the indicators I track, I would not be surprised to see a breakout to the upside. But with the economy slowing and continued strains in the global credit market, I'm not sure how high such a breakout would even carry us. The flip side is that the market is highly news driven in this environment, and any negative developments out of Europe could push the market back to new lows in a hurry. As such, I continue to employ a balanced approach to the market as opposed to trying to get aggressive in either direction.
long SH
27 Eylül 2011 Salı
Early Look: Sigh of Relief Or Just Window Dressing
The markets are up nicely again in early trading, following yesterday's roughly 275-point gain in the Dow. Currently, the Dow is up another 230 pts. CNBC said this would be the first back-to-back 200-pt gains for the Dow since 2008, which seems hard to believe, but I haven't checked.
Asian markets joined in the action overnight, rallying across the board. Hong Kong bounced by an impressive +4.2%. European markets kept the momentum going this morning, with Germany up as much as 4.3% at one point.
The gains in Europe started yesterday with the chatter that officials are putting together a plan to stabilize financial conditions. There has been chatter about a Special Purpose Vehicle (SPV) to buy up some of the problem debt. We will have to see if this can pass, but the bank stocks are responding with gains of up to 7% today.
Consumer Confidence for September came in at 45.4, which is up slightly from last month but still a weak number overall. With all of the negative news out there, this reading isn't all that surprising. The correlation with this series and the stock market is fairly high.
Precious metals are bouncing back today, accompanied by a reprieve in the recent dollar rally. Gold prices have bounced back to $1665, and silver prices are getting a bigger bounce. The silver etf (SLV) put in a solid reversal yesterday, and is up 7% so far today. Oil prices are also higher near $83.60.
The 10-year is higher today, trying to get back to the 2.00% level. And the VIX is down -7.5% so far near the 36.0 level.
Trading comment: It's hard to tell if this week's rally thus far is truly due to a sigh of relief coming out of Europe that they are determined to get their arms around the problem, or if it is merely a bounce-back due to window dressing as underperforming portfolio managers look to put money to work after last week's outsized decline in the market. Volume on the Nasdaq rose yesterday, while NYSE volume failed to surpass Friday's level. But the list of market leading stocks remains sparse. I mentioned that I took some partial profits on our index ETF hedges last Friday, but soon I think I would look to add back to those positions.
long SLV
Asian markets joined in the action overnight, rallying across the board. Hong Kong bounced by an impressive +4.2%. European markets kept the momentum going this morning, with Germany up as much as 4.3% at one point.
The gains in Europe started yesterday with the chatter that officials are putting together a plan to stabilize financial conditions. There has been chatter about a Special Purpose Vehicle (SPV) to buy up some of the problem debt. We will have to see if this can pass, but the bank stocks are responding with gains of up to 7% today.
Consumer Confidence for September came in at 45.4, which is up slightly from last month but still a weak number overall. With all of the negative news out there, this reading isn't all that surprising. The correlation with this series and the stock market is fairly high.
Precious metals are bouncing back today, accompanied by a reprieve in the recent dollar rally. Gold prices have bounced back to $1665, and silver prices are getting a bigger bounce. The silver etf (SLV) put in a solid reversal yesterday, and is up 7% so far today. Oil prices are also higher near $83.60.
The 10-year is higher today, trying to get back to the 2.00% level. And the VIX is down -7.5% so far near the 36.0 level.
Trading comment: It's hard to tell if this week's rally thus far is truly due to a sigh of relief coming out of Europe that they are determined to get their arms around the problem, or if it is merely a bounce-back due to window dressing as underperforming portfolio managers look to put money to work after last week's outsized decline in the market. Volume on the Nasdaq rose yesterday, while NYSE volume failed to surpass Friday's level. But the list of market leading stocks remains sparse. I mentioned that I took some partial profits on our index ETF hedges last Friday, but soon I think I would look to add back to those positions.
long SLV
26 Eylül 2011 Pazartesi
Monday Morning Musings
The market got a nice bounce out of the gate, but so far it has been short-lived as the volatility remains high and the enthusiasm is proving elusive. There was no real news out of Europe over the weekend, and the fact that no news is sometimes good news may have helped spark a relief rally.
Asian markets were lower across the board overnight, but Europe has been higher this morning, with Germany rallying as much as 2.7%. There has been talk that eurozone officials may be preparing new steps aimed at shoring up the fiscal and financial conditions across the pond, but no definitive news yet.
After last weeks sharp selloff, the markets are pretty oversold and it wouldn't take much to see a bounce this week, especially with quarter-end at the end of the week.
Precious metals remain under pressure, with gold prices dropping below the $1600 mark, and silver prices continuing last week's swoon so far.
The 10-year yield is higher to 1.86%; and the VIX is higher also, up another +3.5% to 42.70.
Financials are actually bucking the weakness so far and leading the early action. Technology shares are lagging, led by Apple (AAPL) where there is chatter of production cuts in iPad2s. Somehow I'm not buying that, as I think they are going to sell every single one they can produce.
Trading comment: The SPX held the 1120 level again last week, and is trying to build on its bounce since then. With the VIX this high, traders are still expecting large swings this week. My gut tells me after last week's sharp selloff, the surprise move this week should be to the upside. But it sure would be nice to have a catalyst for it. I took some small trading profits on our index etf hedges last week, but would likely look to add them back if we get the bounce I am looking for. Engine room...more steam!
long AAPL, GLD, SH, SLV
Asian markets were lower across the board overnight, but Europe has been higher this morning, with Germany rallying as much as 2.7%. There has been talk that eurozone officials may be preparing new steps aimed at shoring up the fiscal and financial conditions across the pond, but no definitive news yet.
After last weeks sharp selloff, the markets are pretty oversold and it wouldn't take much to see a bounce this week, especially with quarter-end at the end of the week.
Precious metals remain under pressure, with gold prices dropping below the $1600 mark, and silver prices continuing last week's swoon so far.
The 10-year yield is higher to 1.86%; and the VIX is higher also, up another +3.5% to 42.70.
Financials are actually bucking the weakness so far and leading the early action. Technology shares are lagging, led by Apple (AAPL) where there is chatter of production cuts in iPad2s. Somehow I'm not buying that, as I think they are going to sell every single one they can produce.
Trading comment: The SPX held the 1120 level again last week, and is trying to build on its bounce since then. With the VIX this high, traders are still expecting large swings this week. My gut tells me after last week's sharp selloff, the surprise move this week should be to the upside. But it sure would be nice to have a catalyst for it. I took some small trading profits on our index etf hedges last week, but would likely look to add them back if we get the bounce I am looking for. Engine room...more steam!
long AAPL, GLD, SH, SLV
24 Eylül 2011 Cumartesi
THE D-WAVE BEGINS
It's taken much longer than I originally expected, but we now have confirmation that gold's D-Wave decline has begun.
A D-Wave decline is a normal, regression to the mean, profit-taking event that occurs when gold gets too stretched above the mean. It is not a take down by an anti-gold cartel. Anyone with a modicum of common sense can look at the long-term chart of gold and tell that this is not a manipulated market. This is just a normal secular bull market, and it is acting exactly like a normal bull market acts.
Folks, these conspiracy theories are now bordering on the insane. I even heard the other day someone blame margin increases for the drop in gold. I guess they completely forgot that we've already had two margin increases in the last two months that had virtually no effect on gold.
Every bull market in history has its share of con men and scam artists. Think Bernie Madoff, Enron, WorldCom, etc. The gold manipulation nonsense is just one of the many scams that are going to hitch a ride on this bull. Actually it's one of the oldest scams in the book. You find a bull market, make a one-way bet on rising prices, tout these "to the moon" prices to suck in subscribers lured by the reward of gigantic financial gains, and then blame an invisible cartel every time a correction occurs that you don't foresee. It's a great way of not having to take responsibility when subscribers get caught in a normal corrective decline.
Needless to say I don't play those kind of games. I try to get subscribers out ahead of intermediate declines. Yes, I'm usually a little early. I have the same problem with tops that every other human being in the world has. They are virtually impossible to call in real time. Subscribers to the SMT newsletter have sidestepped all of this D-Wave decline and instead have been 100% invested in the dollar index. The only asset initiating a strong trend higher.
Actually there is a fundamental reason for a D-Wave decline besides just a normal regression to the mean, profit-taking event. The dollar has now moved into the aggressive stage of the rally out of the three year cycle low. Deflation is starting to take hold in the world again. In a deflation defaulting debt collapses the money supply. There is a growing shortage of dollars in the world. That's the reason why the dollar index is rocketing higher. As the value of the dollar rises during this deflation it takes less and less of them to buy an ounce of gold. You can see this same process unfolded as the dollar rallied out of the 2008 three year cycle low.
On a much shorter timescale gold is now in the timing band for a daily cycle low. My best guess is that sometime over the next 1 to 2 weeks gold will move down to tag the 200 day moving average. That will trigger short covering and a very convincing snapback rally. However it's still too early for an intermediate degree bottom. There should be one more daily cycle down into November before the D-Wave puts in its final bottom.
I suspect the next daily cycle is going to be a volatile nightmare that will chew up bulls and bears alike before a final plunge down below the 200 day moving average somewhere between $1300-$1400. As all D-Wave declines have retraced at least 50 to 60% of the previous C-wave advance that would be a minimum target for the November bottom. At that point we should see a very powerful A-wave advance triggered by the extreme oversold conditions generated at the D-Wave bottom. More in the weekend report...
For the next week I am going to open a special $5 trial subscription. You will have complete access to the premium website, archives, model portfolio, etc. You can sample the premium newsletter for a week. If you decide you like the content your subscription will automatically renew on October 1 as a yearly subscription. If you decide you don't want to continue the subscription just follow the directions on the home page of the website to cancel your subscription before October 1.
Click here to go to the premium website then click on the subscribe link on the right-hand side of the page. You will see the special offer at the bottom of the subscription page. Offer has expired
A D-Wave decline is a normal, regression to the mean, profit-taking event that occurs when gold gets too stretched above the mean. It is not a take down by an anti-gold cartel. Anyone with a modicum of common sense can look at the long-term chart of gold and tell that this is not a manipulated market. This is just a normal secular bull market, and it is acting exactly like a normal bull market acts.
Folks, these conspiracy theories are now bordering on the insane. I even heard the other day someone blame margin increases for the drop in gold. I guess they completely forgot that we've already had two margin increases in the last two months that had virtually no effect on gold.
Every bull market in history has its share of con men and scam artists. Think Bernie Madoff, Enron, WorldCom, etc. The gold manipulation nonsense is just one of the many scams that are going to hitch a ride on this bull. Actually it's one of the oldest scams in the book. You find a bull market, make a one-way bet on rising prices, tout these "to the moon" prices to suck in subscribers lured by the reward of gigantic financial gains, and then blame an invisible cartel every time a correction occurs that you don't foresee. It's a great way of not having to take responsibility when subscribers get caught in a normal corrective decline.
Needless to say I don't play those kind of games. I try to get subscribers out ahead of intermediate declines. Yes, I'm usually a little early. I have the same problem with tops that every other human being in the world has. They are virtually impossible to call in real time. Subscribers to the SMT newsletter have sidestepped all of this D-Wave decline and instead have been 100% invested in the dollar index. The only asset initiating a strong trend higher.
Actually there is a fundamental reason for a D-Wave decline besides just a normal regression to the mean, profit-taking event. The dollar has now moved into the aggressive stage of the rally out of the three year cycle low. Deflation is starting to take hold in the world again. In a deflation defaulting debt collapses the money supply. There is a growing shortage of dollars in the world. That's the reason why the dollar index is rocketing higher. As the value of the dollar rises during this deflation it takes less and less of them to buy an ounce of gold. You can see this same process unfolded as the dollar rallied out of the 2008 three year cycle low.
On a much shorter timescale gold is now in the timing band for a daily cycle low. My best guess is that sometime over the next 1 to 2 weeks gold will move down to tag the 200 day moving average. That will trigger short covering and a very convincing snapback rally. However it's still too early for an intermediate degree bottom. There should be one more daily cycle down into November before the D-Wave puts in its final bottom.
I suspect the next daily cycle is going to be a volatile nightmare that will chew up bulls and bears alike before a final plunge down below the 200 day moving average somewhere between $1300-$1400. As all D-Wave declines have retraced at least 50 to 60% of the previous C-wave advance that would be a minimum target for the November bottom. At that point we should see a very powerful A-wave advance triggered by the extreme oversold conditions generated at the D-Wave bottom. More in the weekend report...
For the next week I am going to open a special $5 trial subscription. You will have complete access to the premium website, archives, model portfolio, etc. You can sample the premium newsletter for a week. If you decide you like the content your subscription will automatically renew on October 1 as a yearly subscription. If you decide you don't want to continue the subscription just follow the directions on the home page of the website to cancel your subscription before October 1.
Click here to go to the premium website then click on the subscribe link on the right-hand side of the page. You will see the special offer at the bottom of the subscription page. Offer has expired
23 Eylül 2011 Cuma
Early Look: Stocks Bounce From Key Support
If you were up early enough to see the S&P futures before the open, it looked like the market was going to open lower again. But as the open of trading drew closer, the futures began to slowly improve. In the first hour of trading, the SPX came close to testing that 1120 level again but has since climbed back into positive territory.
Industrials, which have been hit really hard this week, are leading the early action. While energy stocks continue to lag here. The Nasdaq is outperforming the S&P so far also.
There hasn't been a lot in the way of market moving news this morning. Nike (NKE) posted better than expected earnings, and MCD raised its dividend. But there haven't been any economic reports to speak of.
Two times in August the SPX came down to test the 1120 level but held there. Yesterday and today (so far) the market has held those levels again. So it will be interesting to see if the market again bounces higher from here next week (into quarter-end), or if the third time down testing these levels is going to finally give way and we see a break.
Asian markets were lower overnight, and Europe is lower this morning as well. The dollar is lower today, but not really helping commodities much. Oil prices are struggling to hold the $80 level, and gold prices have pulled back further to $1675. Silver has also gotten hammered this week, and I am buying a little for a bounce.
The 10-year yield is bouncing a bit to 1.80%; and the VIX is only down -1.6% to a still high level above 40.
Trading comment: No sense making any big moves today. The market has been down a LOT this week, so it is normal to see some short-covering ahead of the weekend. But we are in that time period where there could be big news any weekend out of Europe, so I don't think many people are going to take big positions on this Friday. More likely, investors are going to square up their exposures, and try to be as flat as possible to minimize the overnight risk. Rest up, next week promises to be another fun one.
long SH, SLV
Industrials, which have been hit really hard this week, are leading the early action. While energy stocks continue to lag here. The Nasdaq is outperforming the S&P so far also.
There hasn't been a lot in the way of market moving news this morning. Nike (NKE) posted better than expected earnings, and MCD raised its dividend. But there haven't been any economic reports to speak of.
Two times in August the SPX came down to test the 1120 level but held there. Yesterday and today (so far) the market has held those levels again. So it will be interesting to see if the market again bounces higher from here next week (into quarter-end), or if the third time down testing these levels is going to finally give way and we see a break.
Asian markets were lower overnight, and Europe is lower this morning as well. The dollar is lower today, but not really helping commodities much. Oil prices are struggling to hold the $80 level, and gold prices have pulled back further to $1675. Silver has also gotten hammered this week, and I am buying a little for a bounce.
The 10-year yield is bouncing a bit to 1.80%; and the VIX is only down -1.6% to a still high level above 40.
Trading comment: No sense making any big moves today. The market has been down a LOT this week, so it is normal to see some short-covering ahead of the weekend. But we are in that time period where there could be big news any weekend out of Europe, so I don't think many people are going to take big positions on this Friday. More likely, investors are going to square up their exposures, and try to be as flat as possible to minimize the overnight risk. Rest up, next week promises to be another fun one.
long SH, SLV
22 Eylül 2011 Perşembe
A Twisted Outlook
Stocks collapsed roughly 700 points over two days after the Federal Reserve launched its “Operation Twist.” The market correctly perceives that the central bank’s plan to swap $400 billion of short-term notes for long-term bonds adds no new reserves to the financial system. So it wasn’t QE3, that’s for sure. No stimulus. In fact, with the Treasury yield curve flattening, the Fed’s sterilized asset swap actually tightened financial markets.The Fed should have listened to the GOP congressional leadership, which in a letter advocated no more stimulus and no more market-subverting interference.
But the real issue is the new FOMC forecast: “There are significant downside risks to the economic outlook, including strains in global financial markets.” That was the killer statement.
So let me repeat: We are on the front end of a recession. The profits picture is very much in doubt. More Obamanomics tax hikes are in the air. Europe is unsolved. U.S. finances are a mess. All this is being discounted by slumping stocks.
Corporate credit risk spreads have been widening, which is a negative for the profits picture, as economist Michael Darda has pointed out. Profits are the mother’s milk of stocks. And the European funding markets have tightened substantially, as their much-wider financial-stress spreads all indicate.
Indeed, the European banking and sovereign-debt crisis is still a shoe waiting to fall. Greece may get bailed out again in a couple of weeks. But so far, the European Union’s authorities have not agreed on a bailout or bankruptcy plan to backstop debt-restructurings, or to recapitalize banks in the wake of those default restructurings.
Meanwhile, September purchasing managers’ indexes for European manufacturing and services teeter on the brink of recession. In Asia, Hong Kong shipping volumes are way down, and China’s PMI came in weak. The global transportation-delivery powerhouse FedEx just lowered its worldwide earnings and sales outlook.
And coming back home, the Obama $1.5 trillion tax-hike plan, and his veto threat for any deficit package that doesn’t include big tax hikes on successful earners, investors, and businesses, is another sword of Damocles hanging over the economy and the stock market.
Is the U.S. stock market now predicting recession? Well, the cyclical economic sectors are in bear-market mode, with roughly 25 percent declines since late April for energy, industrials, and materials. Banks, which are being hurt by credit downgrades and yield-curve flattening, are off over 30 percent.
How bad might the recession be? Well, it’s hard to say. But in all likelihood the answer is not so bad. The yield curve has narrowed from 10s to 2s, from nearly 300 basis points in March to about 150 basis points currently. But the curve is not inverted, and that’s important as a recession signal. And over the past ten years or so, the average spread has been about 160 basis points, not far from today’s reading.
Also, the U.S. banking system is flush with cash, as is corporate America. And for better or worse, interest rates in the Treasury market are negative (easy money). Business profits will slow significantly, but are still likely to rise a bit. And with oil dropping to about $80, a price shock that was a key slowdown factor is going away.
Housing is still in the tank, and consumer spending looks very iffy. And we had zero jobs and zero retail sales in August — two very bad signs. On the other hand, exports and business investment are still rising.
So it’s not 2008. Not by a long shot. But it’s not a pretty picture either.
Mid-Day Update: Europe Hogging The Spotlight
The global selloff started last night in Asia, partially in response to the selloff here in the U.S. but some slowing economic data didn't help the situation. When Europe opened early this morning, its markets were also down sharply.
The concerns about Europe are not going away, and I get the sense that the authorities over there aren't willing to do something "big" without the cover of a major disaster. Whether its a Greek default or a major financial institution in trouble, the potential outcomes are equally unpleasant to this investor.
The market seemed as if it was hanging around to see if the Fed might pull a surprise rabbit out of the hat. When the news came out yesterday about Operation Twist, the selling picked up steam. But the buying into long-date Treasuries picked up with a vengeance. This morning, the yield on the 10-year Note has fallen to a record low of 1.77%.
Commodities are also down sharply today. Oil prices have fallen back to $81.25, while gold prices are now down near $1733. The gold etf (GLD) is sitting just below its 50-day average.
The VIX has spiked higher again this morning, up 8.5% right now to 40.50. Interestingly, if you look at the VIX chart, today's action so far looks like a 4th lower high.
Trading comment: During the recent market rally I had been writing that I didn't want to get sucked in, and that I was trimming equity exposure and adding to our index hedges. That makes me feel at least a little better on days like today, when my screen shows a sea of red. I still think we could see some buying surface as we near quarter-end, but I would continue to employ the same strategy. Any buys I may look at on the long side will have a short leash attached.
Disclosure: Jordan Kahn and/or KAM clients are long GLD, SH though positions can change at any time
The concerns about Europe are not going away, and I get the sense that the authorities over there aren't willing to do something "big" without the cover of a major disaster. Whether its a Greek default or a major financial institution in trouble, the potential outcomes are equally unpleasant to this investor.
The market seemed as if it was hanging around to see if the Fed might pull a surprise rabbit out of the hat. When the news came out yesterday about Operation Twist, the selling picked up steam. But the buying into long-date Treasuries picked up with a vengeance. This morning, the yield on the 10-year Note has fallen to a record low of 1.77%.
Commodities are also down sharply today. Oil prices have fallen back to $81.25, while gold prices are now down near $1733. The gold etf (GLD) is sitting just below its 50-day average.
The VIX has spiked higher again this morning, up 8.5% right now to 40.50. Interestingly, if you look at the VIX chart, today's action so far looks like a 4th lower high.
Trading comment: During the recent market rally I had been writing that I didn't want to get sucked in, and that I was trimming equity exposure and adding to our index hedges. That makes me feel at least a little better on days like today, when my screen shows a sea of red. I still think we could see some buying surface as we near quarter-end, but I would continue to employ the same strategy. Any buys I may look at on the long side will have a short leash attached.
Disclosure: Jordan Kahn and/or KAM clients are long GLD, SH though positions can change at any time
21 Eylül 2011 Çarşamba
FOMC To Commence "Operation Twist" To The Tune of $400 billion
Here is the latest statement from the FOMC:
Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.
The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.
The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
Early Look: Tech Relative Outperformance Continues
The market was briefly higher in early trading, but has since dipped back into negative territory. Actually, the SPX is lower on the day right now, but the Nazz is still barely in positive territory.
Tech is handily outperforming today, and continuing the relative sector outperformance that we have seen of late. Materials are taking it on the chin so far this morning. The poster child for the group could be Freeport McMoran (FCX) which is down more than -5% as copper prices have plunged recently and there is chatter of slowing demand from big players like China.
In corporate news, solid earnings reports from ORCL, ADBE, and GIS have boosted all three of those stocks this morning. Also, Microsoft raised its quarterly dividend by 25%, but so far its not helping the stock.
In economic news, new home sales came in better than expected at 5.03 million units in August, which is up from last months rate of 4.67 million units. Not bad for a month like August, when it seemed like bad news was everywhere.
Asian markets were mixed overnight, but China was able to rally 2.7%. Europe's markets are down again this morning despite EU officials saying they believe progress is being made on Greece's debt.
The dollar is higher this morning, and commodities are mixed. Oil prices are higher near $87.88, while gold prices are lower to $1797.
The 10-year yield is lower again to 1.91%, and getting close to hitting new lows in yield. The VIX is bouncing higher from its 50-day average, up 4.5% to 34.38.
The Fed will make its policy statement today and there is a ton of chatter about "Operation Twist", where the Fed might sell short-dated Treasuries and buy long-dated ones. With yields on the 10-year already below 2.00%, I'm not sure how big of an effect this could possibly have. If it spurs more bank lending, I'm all for it, but it would seem there might be a better solution if increased bank lending is truly the aim. Let's see what the Bernank has to say about it.
Tech is handily outperforming today, and continuing the relative sector outperformance that we have seen of late. Materials are taking it on the chin so far this morning. The poster child for the group could be Freeport McMoran (FCX) which is down more than -5% as copper prices have plunged recently and there is chatter of slowing demand from big players like China.
In corporate news, solid earnings reports from ORCL, ADBE, and GIS have boosted all three of those stocks this morning. Also, Microsoft raised its quarterly dividend by 25%, but so far its not helping the stock.
In economic news, new home sales came in better than expected at 5.03 million units in August, which is up from last months rate of 4.67 million units. Not bad for a month like August, when it seemed like bad news was everywhere.
Asian markets were mixed overnight, but China was able to rally 2.7%. Europe's markets are down again this morning despite EU officials saying they believe progress is being made on Greece's debt.
The dollar is higher this morning, and commodities are mixed. Oil prices are higher near $87.88, while gold prices are lower to $1797.
The 10-year yield is lower again to 1.91%, and getting close to hitting new lows in yield. The VIX is bouncing higher from its 50-day average, up 4.5% to 34.38.
The Fed will make its policy statement today and there is a ton of chatter about "Operation Twist", where the Fed might sell short-dated Treasuries and buy long-dated ones. With yields on the 10-year already below 2.00%, I'm not sure how big of an effect this could possibly have. If it spurs more bank lending, I'm all for it, but it would seem there might be a better solution if increased bank lending is truly the aim. Let's see what the Bernank has to say about it.
THE NEXT SELLING WAVE IS ABOUT TO BEGIN
As many of you already know I expected the dollar index to put in a major three year cycle low sometime this year. The normal timing band would have been for a bottom in the spring. The recent breakout and move to new highs has confirmed that the May bottom did in fact mark the three year cycle low. As expected that also marked the top of the cyclical bull market in stocks.
It's widely expected that the Fed will announce operation Twist at today's FOMC meeting. Obviously if printing several trillion dollars didn't save the economy, then rotating the Fed's balance sheet from short-term interest rates to long-term in the attempt to hold down the long end of the yield curve isn't going to have any effect at all as the approaching recession intensifies. Interest rates are already at historic lows.
Interest rates aren't the reason why people are not borrowing.With continued high unemployment There simply isn't enough demand for businesses to expand their operations. The American consumer is so deeply in debt that he can't service it. Unfortunately, we can't print money like the US government so it doesn't help us to go deeper into debt. The US consumer will not be borrowing money any time soon.
The bottom line is operation twist will be a miserable failure just like QE1 and QE2.
The stock market, and gold are now moving into the timing band for the next daily cycle low (selling event). The only question now is whether the announcement of operation Twist this afternoon will initiate a short term knee-jerk reaction higher, or whether the market will immediately continue to sell off into that next cycle low that is due to bottom sometime in the next 11 days.
I expect gold to bottom a little sooner as its daily cycle tends to be slightly shorter.
But gold also is at a critical stage. It must hold above the prior daily cycle low of $1705. If it fails to do that it will signal that an intermediate degree decline has begun. It would also signal a left translated intermediate cycle which would have high odds of moving below the prior intermediate degree bottom of $1478.
As you can see in the chart below gold began to struggle just as soon as the aggressive stage of the dollar rally began.
As the stock market moves down into the next daily cycle low and the selling pressure intensifies, this should drive the dollar index much higher. It remains to be seen if gold can reverse this pattern of weakness in the face of dollar strength, especially since the dollar will almost certainly be rallying violently during the intense selling pressure that is coming in the stock market.
All we can do now is wait to see what the initial reaction to operation Twist will be this afternoon. Will there be a temporary knee-jerk rally that quickly fails, or will the market just continue down after yesterdays reversal?
Interest rates aren't the reason why people are not borrowing.With continued high unemployment There simply isn't enough demand for businesses to expand their operations. The American consumer is so deeply in debt that he can't service it. Unfortunately, we can't print money like the US government so it doesn't help us to go deeper into debt. The US consumer will not be borrowing money any time soon.
The bottom line is operation twist will be a miserable failure just like QE1 and QE2.
The stock market, and gold are now moving into the timing band for the next daily cycle low (selling event). The only question now is whether the announcement of operation Twist this afternoon will initiate a short term knee-jerk reaction higher, or whether the market will immediately continue to sell off into that next cycle low that is due to bottom sometime in the next 11 days.
As you can see in the chart below gold began to struggle just as soon as the aggressive stage of the dollar rally began.
All we can do now is wait to see what the initial reaction to operation Twist will be this afternoon. Will there be a temporary knee-jerk rally that quickly fails, or will the market just continue down after yesterdays reversal?
20 Eylül 2011 Salı
Early Look: Italy's Downgrade Priced In
The market was slightly lower in early trading, but has since bounced back into positive territory. Asian markets were lower overnight, but Europe was actually higher this morning.
Europe's rally is somewhat surprising given that Italy had its debt rating downgraded last night by Moody's. Speculation about this downgrade has been talked about since last week, so it wasn't a total surprise. And news that Greece is closer to an austerity plan that will help them secure aid seems to be trumping the news on Italy today.
Healthcare stocks are leading the early action, while industrials are lagging. The dollar is also lower today, helping to push oil prices back towards $86.60 and gold prices back above the $1800 level.
The Fed will start its 2-day meeting today with its latest policy statement tomorrow afternoon. There is a lot of chatter about 'Operation Twist', so we will have to see how much detail the Fed gives us as well as their expectations for what they think this will accomplish.
The SPX is still trading below its 50-day average resistance, currently around 1223. For its part, the Nazz is enjoying its thirds straight day above its 50-day and showing relative outperformance over the SPX recently.
Trading comment: Yesterday, while the overall market was lower there was a growing handful of growth stocks bucking the broad weakness and trading higher. This is a positive sign for the bulls, and could continue into quarter-end as portfolio managers look to add performance after underperforming recently.
Europe's rally is somewhat surprising given that Italy had its debt rating downgraded last night by Moody's. Speculation about this downgrade has been talked about since last week, so it wasn't a total surprise. And news that Greece is closer to an austerity plan that will help them secure aid seems to be trumping the news on Italy today.
Healthcare stocks are leading the early action, while industrials are lagging. The dollar is also lower today, helping to push oil prices back towards $86.60 and gold prices back above the $1800 level.
The Fed will start its 2-day meeting today with its latest policy statement tomorrow afternoon. There is a lot of chatter about 'Operation Twist', so we will have to see how much detail the Fed gives us as well as their expectations for what they think this will accomplish.
The SPX is still trading below its 50-day average resistance, currently around 1223. For its part, the Nazz is enjoying its thirds straight day above its 50-day and showing relative outperformance over the SPX recently.
Trading comment: Yesterday, while the overall market was lower there was a growing handful of growth stocks bucking the broad weakness and trading higher. This is a positive sign for the bulls, and could continue into quarter-end as portfolio managers look to add performance after underperforming recently.
Obama’s Bizarre Tax Attack
It could almost make your head spin. With an economy on the front end of another recession, President Obama’s tax attack on the folks who are most likely to succeed, invest, start new businesses, and create jobs is nothing short of staggering. Only liberal-left class-warfare ideology can explain this.
In his speech on Monday, Obama laid out $1.5 trillion in tax hikes over ten years, aimed almost entirely at America’s well-to-do. This includes $800 billion from rolling back the top rates in the Bush tax-cut plan, $470 some-odd billion to reduce itemized deductions for upper-bracket payers, and — oh yes — a millionaire’s tax called the “Buffett Rule.”
Pause a moment on the Buffett Rule. Almost all of Warren Buffett’s income comes from capital gains taxed at 15 percent. He only pays himself $100,000 a year, which would be taxed at the top rate. Most of his wealth is untaxed as unrealized capital gains. So his effective income-tax rate is lower than his secretary’s.
So what?
The vast majority of millionaires pay a 35 percent current tax rate on personal income from salaries, bonuses, and small-business income. Their effective tax rate is around 30 percent, much higher than the roughly 20 percent effective rate for the so-called middle class (depending, of course, on how you define the middle class).
Remember that the top 1 percent of income-tax payers shoulders 40 percent of all income taxes. They are paying their fair share. Then remember that 50 percent of income-tax filers don’t pay any income tax at all.
Obama refuses to tell us what the new millionaire tax rate would be, or what the formula might be in relation to middle-class taxpayers. But one thing’s for sure: This new Buffet tax is a penalty on investment, risk-taking, and job-creation.
No one even knows what the targeted group is going to be. A New York Times story suggests that the Buffet tax will hit three-tenths of 1 percent of taxpayers, which could be 450,000 people out of 144 million tax returns.
A Wall Street Journal story suggests the Buffet tax would have hit just 22,000 people in 2009, those households making more than $1 million annually and paying less than 15 percent of income in federal income taxes. According to the Tax Policy Center, doubling the tax burden of those 22,000 would raise just $19 billion a year. How silly is this?
And let’s also not forget that over the past four decades the evidence is absolutely clear that a lower capital-gains tax produces huge gains in revenues. Raising the cap-gains tax lowers revenues. It’s a pure Laffer-curve effect.
Clearly, the logic here is political, not economic. And it’s equally clear that Mr. Obama is now catering to his liberal-left base. I guess his logic is that even though so many people don’t have jobs, they’ll feel much better knowing that 22,000 rich people will have a higher tax rate.
Make sense?
Adding to this bizarre scenario, Obama knows full well that the debt-ceiling deal now moving to the phase-two super committee rules out tax increases. He also knows full well that none of these tax hikes will ever get through the GOP House. Perhaps, as Congressman Paul Ryan notes, class warfare makes for good politics. Perhaps.
But Ronald Reagan was branded a class warrior for the Kemp-Roth tax cuts, and he was overwhelmingly reelected. Why? Because low tax rates reignited economic growth and job-creation. Today, the president’s militant tax-hike threats, along with Obamacare and unmanageable regulatory costs, are holding back job-creators.
And Paul Ryan makes another key point: Tax investment more, and you’ll get less of it. If these kinds of tax hikes are ever passed, the economy will be doomed to stagnation over the long-run. Penalizing incentives will do that. And lower growth means higher deficits.
Why in the world doesn’t President Obama follow the overwhelming consensus for fundamental tax reform to lower marginal rates and broaden the income base? Economists of all stripes agree on this.
At the end of the day, it sure looks like our president wants to raise taxes on wealthy Americans and large corporations in order to spend more and enlarge the size and scope of government. From the standpoint of jobs, growth, and prosperity, it just won’t work.
In his speech on Monday, Obama laid out $1.5 trillion in tax hikes over ten years, aimed almost entirely at America’s well-to-do. This includes $800 billion from rolling back the top rates in the Bush tax-cut plan, $470 some-odd billion to reduce itemized deductions for upper-bracket payers, and — oh yes — a millionaire’s tax called the “Buffett Rule.”
Pause a moment on the Buffett Rule. Almost all of Warren Buffett’s income comes from capital gains taxed at 15 percent. He only pays himself $100,000 a year, which would be taxed at the top rate. Most of his wealth is untaxed as unrealized capital gains. So his effective income-tax rate is lower than his secretary’s.
So what?
The vast majority of millionaires pay a 35 percent current tax rate on personal income from salaries, bonuses, and small-business income. Their effective tax rate is around 30 percent, much higher than the roughly 20 percent effective rate for the so-called middle class (depending, of course, on how you define the middle class).
Remember that the top 1 percent of income-tax payers shoulders 40 percent of all income taxes. They are paying their fair share. Then remember that 50 percent of income-tax filers don’t pay any income tax at all.
Obama refuses to tell us what the new millionaire tax rate would be, or what the formula might be in relation to middle-class taxpayers. But one thing’s for sure: This new Buffet tax is a penalty on investment, risk-taking, and job-creation.
No one even knows what the targeted group is going to be. A New York Times story suggests that the Buffet tax will hit three-tenths of 1 percent of taxpayers, which could be 450,000 people out of 144 million tax returns.
A Wall Street Journal story suggests the Buffet tax would have hit just 22,000 people in 2009, those households making more than $1 million annually and paying less than 15 percent of income in federal income taxes. According to the Tax Policy Center, doubling the tax burden of those 22,000 would raise just $19 billion a year. How silly is this?
And let’s also not forget that over the past four decades the evidence is absolutely clear that a lower capital-gains tax produces huge gains in revenues. Raising the cap-gains tax lowers revenues. It’s a pure Laffer-curve effect.
Clearly, the logic here is political, not economic. And it’s equally clear that Mr. Obama is now catering to his liberal-left base. I guess his logic is that even though so many people don’t have jobs, they’ll feel much better knowing that 22,000 rich people will have a higher tax rate.
Make sense?
Adding to this bizarre scenario, Obama knows full well that the debt-ceiling deal now moving to the phase-two super committee rules out tax increases. He also knows full well that none of these tax hikes will ever get through the GOP House. Perhaps, as Congressman Paul Ryan notes, class warfare makes for good politics. Perhaps.
But Ronald Reagan was branded a class warrior for the Kemp-Roth tax cuts, and he was overwhelmingly reelected. Why? Because low tax rates reignited economic growth and job-creation. Today, the president’s militant tax-hike threats, along with Obamacare and unmanageable regulatory costs, are holding back job-creators.
And Paul Ryan makes another key point: Tax investment more, and you’ll get less of it. If these kinds of tax hikes are ever passed, the economy will be doomed to stagnation over the long-run. Penalizing incentives will do that. And lower growth means higher deficits.
Why in the world doesn’t President Obama follow the overwhelming consensus for fundamental tax reform to lower marginal rates and broaden the income base? Economists of all stripes agree on this.
At the end of the day, it sure looks like our president wants to raise taxes on wealthy Americans and large corporations in order to spend more and enlarge the size and scope of government. From the standpoint of jobs, growth, and prosperity, it just won’t work.
19 Eylül 2011 Pazartesi
Early Look: Renewed Worries Over Greece
The markets are sharply lower this morning on the heels of overnight losses in Asian markets last night as well as pronounced weakness in Europe this morning. Last week was a nice reprieve to the selling, as the markets bounced back 5%. But this morning there are renewed worries about Greece's ability to meet its debt obligations.
President Obama is set to deliver a speech about balancing the federal budget, which will include some ideas for new taxes on the "rich". Don't expect this to do much of anything to help the markets.
Outside of that, there isn't a ton of news. There was some M&A speculation that Goodrich (GR) will get a bid, and Tyco is set to spit itself up. But most of the days action is simply sentiment driven.
The dollar is higher today relative to the euro and yen. And commodities are lower. Oil prices have fallen back to $85, while gold prices are also lower near $1785.
As for the 10-year yield, is has fallen back below the 2.00% level and currently is hitting 1.96%. The VIX bounced off its 50-day average and is up 12% right now to 34.75.
Trading comment: It was a little uncomfortable to remain so defensive last week as the market climbed higher for 5 straight days. But without any improvement on the fundamental front, it seemed that any bit of bad news to resurface could knock the market right back down. That is the feeling I have this morning, although technically the market is still in this rangebound battle. SPX 1140 has been holding in as support while 1230 has been resistance. As the range narrows, we will get closer to a breakout. The high levels of bearish sentiment support a breakout to the upside, but the fragility of the market make it a tough bet.
long SH
President Obama is set to deliver a speech about balancing the federal budget, which will include some ideas for new taxes on the "rich". Don't expect this to do much of anything to help the markets.
Outside of that, there isn't a ton of news. There was some M&A speculation that Goodrich (GR) will get a bid, and Tyco is set to spit itself up. But most of the days action is simply sentiment driven.
The dollar is higher today relative to the euro and yen. And commodities are lower. Oil prices have fallen back to $85, while gold prices are also lower near $1785.
As for the 10-year yield, is has fallen back below the 2.00% level and currently is hitting 1.96%. The VIX bounced off its 50-day average and is up 12% right now to 34.75.
Trading comment: It was a little uncomfortable to remain so defensive last week as the market climbed higher for 5 straight days. But without any improvement on the fundamental front, it seemed that any bit of bad news to resurface could knock the market right back down. That is the feeling I have this morning, although technically the market is still in this rangebound battle. SPX 1140 has been holding in as support while 1230 has been resistance. As the range narrows, we will get closer to a breakout. The high levels of bearish sentiment support a breakout to the upside, but the fragility of the market make it a tough bet.
long SH
18 Eylül 2011 Pazar
16 Eylül 2011 Cuma
Mike Bloomberg’s Irresponsible Riot Tactic
New York City mayor Mike Bloomberg, in a radio interview on Friday, warned that high unemployment could lead to widespread rioting. That’s right. He actually said that. At a time when European cities have suffered massively from hooliganism, and at a time when U.S. towns like Philadelphia and Kansas City have suffered huge human and commercial tolls from so-called flash riots. For Bloomberg to come out with this statement is irresponsible and incendiary. But you know what? He’s got a personal agenda. This is a desperate talking point to sell Obama’s jobs plan, which Bloomberg favors as a solution to high unemployment and zero growth.
There’s a whole history here of liberals threatening riots if they don’t get their way. WABC radio host Mark Simone reminded me that back in 1994, Matilda Cuomo warned there would be race riots in New York if her husband Mario weren’t reelected governor in his race against George Pataki.
So now the liberal Mike Bloomberg is trying to go to bat for his pal Obama. And he’s doing so in a very clumsy and inappropriate way.
In fact, Bloomberg is pitching for the whole Obama jobs package -- the $450 billion stimulus plan and the $470 billion tax hike. The package is totally unpopular. A recent Bloomberg poll (how ironic) showed that voters disapprove of more Obama stimulus by 51 to 40 percent, and that 56 percent of independents oppose it. Other polls show that more than 60 percent of Americans disapprove of Obama’s handling of the economy.
Memories are long. The $800 billion stimulus package nearly three years ago didn’t work. So why do it again? Large dollops of government spending combined with temporary tax cuts do not promote investment or entrepreneurship, which are the true job-creators. Tax-rate incentives must be permanent in order to grow the economy. Digging holes for infrastructure may be necessary, but it’s no job-creator for the private sector.
And that $470 billion tax-hike bill, due in 2013, comes on top of other scheduled tax hikes, such as higher personal tax rates on successful earners and small businesses and the Obamacare payroll-tax increases that encompass investors.
The Wall Street Journal’s Steve Moore calls this a steep tax cliff. It’s exactly what the economy doesn’t need for the simple reason that business people today have at least a three-to-five-year time horizon when it comes to making decisions to invest and employ. They know a temporary-tax-cut red herring when they see one.
As a formerly successful entrepreneur, Mike Bloomberg should know this. But he supports Obama’s tax increases along with the rest of the futile stimulus package. And he has taken to the radio airwaves to support these policies in an incendiary and self-defeating fashion.
Some political insiders I spoke to believe Bloomberg desperately wants Obama to win a second term. They say the New York City mayor wants to be Obama’s new treasury secretary. Therefore, Bloomberg is hammering Republicans today and absolving Obama from taking any blame or ownership of the current economic mess, which has placed the nation on the front end of yet another recession.
Riots are not the answer to our economic problems. Promoting private-sector investment is. As Bloomberg well knows from his own experience, businesses create the jobs that provide incomes for families and consumers. And businesses require capital investment. But if we keep raising taxes on investment, we will get less of it.
The American economy will continue to stall until we get a right-thinking new administration.
Early Look: Europe Considering TALF-like Program
The markets have been volatile again in early trading. Coming off the heels of very solid rallies in Asia and Europe, our markets began to climb in the first hour of trading but so far traders have sold into that rally and pushed the indexes back to the flat line.
It's very possible that folks are nervous about going long into the weekend, given that any piece of bad news to surface out of Europe over the weekend could hit the markets come Monday morning. Also, the markets have put in a very nice week already, with the major indexes up roughly 5% for the week so far.
Asian markets rallied overnight after news that the major central banks would provide dollar liquidity to Euro banks. Europe also rallied again today on news that a TALF-like program is also being considered in Europe.
In economic news, the Consumer Sentiment Survey for August actually rose to 57.8 from 55.7 last month. Go figure, someone must be looking at the silver lining out there.
The dollar is higher today, while commodities are mixed. Oil prices are lower near $88 right now, while gold prices are trying to get back to the $1800 level, still trading slightly below that.
The 10-year yield had a nice rise yesterday, and is hovering near 2.07%; and the VIX came all the way down to 30 this morning before bouncing higher as it approached its 50-day average.
Trading comment: A lot of people are watching key technical levels right now. The SPX needs to get above its late August highs at SPX 1230 to signal more upside. So far today it has been unable to hold the upside momentum. As for the Nasdaq, 2600 has been upside resistance of late. But the growth index is actually above those levels this morning, and sitting right on its 50-day average. Looks like we will have to wait until next week to see if the market can build on this week's gains.
It's very possible that folks are nervous about going long into the weekend, given that any piece of bad news to surface out of Europe over the weekend could hit the markets come Monday morning. Also, the markets have put in a very nice week already, with the major indexes up roughly 5% for the week so far.
Asian markets rallied overnight after news that the major central banks would provide dollar liquidity to Euro banks. Europe also rallied again today on news that a TALF-like program is also being considered in Europe.
In economic news, the Consumer Sentiment Survey for August actually rose to 57.8 from 55.7 last month. Go figure, someone must be looking at the silver lining out there.
The dollar is higher today, while commodities are mixed. Oil prices are lower near $88 right now, while gold prices are trying to get back to the $1800 level, still trading slightly below that.
The 10-year yield had a nice rise yesterday, and is hovering near 2.07%; and the VIX came all the way down to 30 this morning before bouncing higher as it approached its 50-day average.
Trading comment: A lot of people are watching key technical levels right now. The SPX needs to get above its late August highs at SPX 1230 to signal more upside. So far today it has been unable to hold the upside momentum. As for the Nasdaq, 2600 has been upside resistance of late. But the growth index is actually above those levels this morning, and sitting right on its 50-day average. Looks like we will have to wait until next week to see if the market can build on this week's gains.
15 Eylül 2011 Perşembe
The Downturn Scenario
Is the economy standing on the front end of a new recession? As IMF executive director Christine Lagarde and World Bank president Robert Zoellick warn that the global economy is entering a new economic danger zone, there’s plenty to be worried about right here in the U.S.A.
The August batch of economic stats shows zero jobs and zero retail sales. Industrial production rose slightly to save us from a clean zero sweep, but it was only two-tenths of 1 percent. However, manufacturing registered by the New York Fed and the Philly Fed showed continued declines. Jobless claims continue to rise. On top of all that, consumer prices showed a surprising increase.
So at best, we have a stagflationary stall in the economy, while at worst a recession could take hold.
Even on the profits front, which has been strong, top Wall Street economist Ed Yardeni reports a large drop in the growth of corporate tax receipts, suggesting a major profits slowdown. A Wall Street Journal story reports a profits squeeze from manufacturers. With productivity slipping, unit labor costs paid by business are rising faster than the prices business can get. Echoing that, producer prices are rising much faster than consumer inflation at retail.
The recession call is not conclusive. I’m the first to admit it. And my optimistic instincts rebel against the downturn scenario. But facts are facts. They must be reported. And the numbers aren’t good.
At this stage there’s virtually nothing the Federal Reserve can do. It caused the huge oil shock by depreciating the dollar during QE2. That’s been a killer. Now it’s time for some pro-growth fiscal policy. The Obama stimulus package repeats all the president’s past mistakes: temporary tax cuts, big spending, government planning (think Solyndra), and all these targeted clean-energy and infrastructure plans that spend the public’s money but do not on balance create new jobs -- and certainly do not create new entrepreneurial start-up businesses.
House Republicans ought to take a look at the revolt against Obamanomics. All the polls show it. Republican Bob Turner’s dramatic election win in Queens, N.Y., shows it. The voter zeitgeist has turned against the president’s policies. The GOP should rip up the Obama plan and come down with fundamental tax and regulatory reform to generate new economic-growth incentives and roll back the big-government regulatory costs on business.
The force is with the Republican party as the country awaits bold new action to get us out this economic mess.
The August batch of economic stats shows zero jobs and zero retail sales. Industrial production rose slightly to save us from a clean zero sweep, but it was only two-tenths of 1 percent. However, manufacturing registered by the New York Fed and the Philly Fed showed continued declines. Jobless claims continue to rise. On top of all that, consumer prices showed a surprising increase.
So at best, we have a stagflationary stall in the economy, while at worst a recession could take hold.
Even on the profits front, which has been strong, top Wall Street economist Ed Yardeni reports a large drop in the growth of corporate tax receipts, suggesting a major profits slowdown. A Wall Street Journal story reports a profits squeeze from manufacturers. With productivity slipping, unit labor costs paid by business are rising faster than the prices business can get. Echoing that, producer prices are rising much faster than consumer inflation at retail.
The recession call is not conclusive. I’m the first to admit it. And my optimistic instincts rebel against the downturn scenario. But facts are facts. They must be reported. And the numbers aren’t good.
At this stage there’s virtually nothing the Federal Reserve can do. It caused the huge oil shock by depreciating the dollar during QE2. That’s been a killer. Now it’s time for some pro-growth fiscal policy. The Obama stimulus package repeats all the president’s past mistakes: temporary tax cuts, big spending, government planning (think Solyndra), and all these targeted clean-energy and infrastructure plans that spend the public’s money but do not on balance create new jobs -- and certainly do not create new entrepreneurial start-up businesses.
House Republicans ought to take a look at the revolt against Obamanomics. All the polls show it. Republican Bob Turner’s dramatic election win in Queens, N.Y., shows it. The voter zeitgeist has turned against the president’s policies. The GOP should rip up the Obama plan and come down with fundamental tax and regulatory reform to generate new economic-growth incentives and roll back the big-government regulatory costs on business.
The force is with the Republican party as the country awaits bold new action to get us out this economic mess.
Early Look: European Banks Get Liquidity Boost
The markets are in rally mode in early trading after some good news out of Europe. The ECB has coordinated efforts with the Fed, Bank of England, Bank of Japan, and Swiss Natl Bank to offer European banks dollar loans. This liquidity injection has improved sentiment on the continent, and Europe's markets are higher this morning. Asian markets were also higher overnight.
The dollar is lower on the news, while most commodities are mixed. Oil prices are higher near $89.60, while gold prices are down again, falling back to $1782 currently.
Economic news was mixed this morning, with the CPI coming in higher than expected, and a slight improvement in the Philly Fed Survey to -17.5 from -30.7 last month.
Financials and industrials are leading the early action, while defensive issues like healthcare and consumer staples are lagging.
The 10-year yield is getting a nice boost, trading at 2.07%. And the VIX is down another 4% currently to 33.18.
Trading comment: Yesterday's rally felt like mostly short-covering, as it was led by low quality stocks and overall volume was below average. But that is how a lot of rallies start. I think performance anxiety is playing a factor, with most managers underweight and underperforming as quarter-end approaches. Not to mention this week's options expiration, which often leads to pronounced moves. If the SPX can get back above 1220, we could be back in rally mode.
long SH
The dollar is lower on the news, while most commodities are mixed. Oil prices are higher near $89.60, while gold prices are down again, falling back to $1782 currently.
Economic news was mixed this morning, with the CPI coming in higher than expected, and a slight improvement in the Philly Fed Survey to -17.5 from -30.7 last month.
Financials and industrials are leading the early action, while defensive issues like healthcare and consumer staples are lagging.
The 10-year yield is getting a nice boost, trading at 2.07%. And the VIX is down another 4% currently to 33.18.
Trading comment: Yesterday's rally felt like mostly short-covering, as it was led by low quality stocks and overall volume was below average. But that is how a lot of rallies start. I think performance anxiety is playing a factor, with most managers underweight and underperforming as quarter-end approaches. Not to mention this week's options expiration, which often leads to pronounced moves. If the SPX can get back above 1220, we could be back in rally mode.
long SH
CAUTION IS WARRANTED
I realize that most people that come to this blog are bullish on gold. I myself am definitely bullish long-term. That being said warning signs are starting to build.
Since gold is down this morning there's a good chance that the mining stocks are going to break the intermediate trend line today. The complete failure to follow through on the move above 600 is also concerning. Usually after an asset has tested an area three times the breakout occurs with strong follow-through.
Gold is also in jeopardy of breaking the intermediate trend line.
A move below $1705 would confirm a failed daily cycle and a left translated intermediate cycle. That would almost certainly lead to a D-wave decline.
Every D wave so far has retraced 50-62% of the preceding C-wave advance. If it turns out that $1923 was the top of the C-wave then we can expect a move back to the $1400 to $1500 level.
Moreover as this would be a left translated intermediate cycle it should move below the prior intermediate low. Taking that into consideration it would be more likely that gold would decline to test the consolidation zone around $1400 before putting in a final D-wave bottom.
I've mentioned before that C-wave tops tend to occur slightly above a big round psychological number. We currently have a 2b reversal at $1925.
For those people holding gold or mining stocks your position size needs to be small enough that you don't do serious damage to your account if gold takes out $1705 as that would confirm that a D-wave decline has begun and probably still has another $300 to go before a final bottom.
Since gold is down this morning there's a good chance that the mining stocks are going to break the intermediate trend line today. The complete failure to follow through on the move above 600 is also concerning. Usually after an asset has tested an area three times the breakout occurs with strong follow-through.
A move below $1705 would confirm a failed daily cycle and a left translated intermediate cycle. That would almost certainly lead to a D-wave decline.
Every D wave so far has retraced 50-62% of the preceding C-wave advance. If it turns out that $1923 was the top of the C-wave then we can expect a move back to the $1400 to $1500 level.
Moreover as this would be a left translated intermediate cycle it should move below the prior intermediate low. Taking that into consideration it would be more likely that gold would decline to test the consolidation zone around $1400 before putting in a final D-wave bottom.
For those people holding gold or mining stocks your position size needs to be small enough that you don't do serious damage to your account if gold takes out $1705 as that would confirm that a D-wave decline has begun and probably still has another $300 to go before a final bottom.
14 Eylül 2011 Çarşamba
Wall Street All-Stars
I am writing for a brand new website called Wall Street All-Stars. The site was co-founded by Cody Willard and Scott Rothbort. Both of these guys are talented writers and market thinkers, and both are former colleagues from RealMoney.com.
The site is still putting together a talented roster of contributors. So please check it out, and feel free to provide any comments you have about the new site.
Thanks,
Jordan
The site is still putting together a talented roster of contributors. So please check it out, and feel free to provide any comments you have about the new site.
Thanks,
Jordan
Early Look: Geithner Says 'No More Lehmans'
The markets are choppy in early trading, after opening on a higher note. Early this morning Europe's markets were trading higher which help improve the tone of U.S. markets at the open. But after a brief bounce to SPX 1180 after the open, the markets have slipped back into negative territory. That said, it is still early in the session.
The improved tone in Europe today flies in the face of the downgrades of some of France's big financial institutions, but it is likely because that was already priced into stocks at this point.
The other news item that helped the markets bounce were comments from Secretary Geithner at a conference in NY where he said that there would be "no more Lehmans" in Europe, and that officials over there were committed to preventing a big institution from failing. Despite his comments, the markets want to see more concrete evidence in the form of a bigger EFSF of some other solution before they take Geithners words to heart.
The euro is bouncing at the expense of the dollar. But this isn't helping most commodities. Oil prices are lower near $89, and gold prices have pulled back to $1281.
In economic news, August retail sales were flat, and up 0.1% ex-autos. Both figures are below consensus estimates.
The 10-year yield is still struggling below the 2.00% level; and the VIX is slightly higher in early trading near the 37.25 level.
Trading comment: Still no change to my recent trading mantra that I prefer staying defensive at this juncture. We used yesterday's bounce to add a little bit to our index hedges. We are still net long in the equity portion of our balanced accounts, but have been decreasing our exposure at the margin.
long SH
The improved tone in Europe today flies in the face of the downgrades of some of France's big financial institutions, but it is likely because that was already priced into stocks at this point.
The other news item that helped the markets bounce were comments from Secretary Geithner at a conference in NY where he said that there would be "no more Lehmans" in Europe, and that officials over there were committed to preventing a big institution from failing. Despite his comments, the markets want to see more concrete evidence in the form of a bigger EFSF of some other solution before they take Geithners words to heart.
The euro is bouncing at the expense of the dollar. But this isn't helping most commodities. Oil prices are lower near $89, and gold prices have pulled back to $1281.
In economic news, August retail sales were flat, and up 0.1% ex-autos. Both figures are below consensus estimates.
The 10-year yield is still struggling below the 2.00% level; and the VIX is slightly higher in early trading near the 37.25 level.
Trading comment: Still no change to my recent trading mantra that I prefer staying defensive at this juncture. We used yesterday's bounce to add a little bit to our index hedges. We are still net long in the equity portion of our balanced accounts, but have been decreasing our exposure at the margin.
long SH
13 Eylül 2011 Salı
The King Dollar Frontrunners
Watching the two GOP frontrunners in last night’s debate — Mitt Romney and Rick Perry — a couple of policy points jumped out at me.First, regarding the Fed, both candidates strongly supported King Dollar. This is interesting because monetary policy continues to be a GOP campaign issue. That is rare in politics, but it’s a good thing in the context of today’s sputtering economy and failed quantitative easing.
For Governor Romney, who said he would not reappoint Bernanke in the last debate, this is a switch from April when he defended Bernanke in an interview with me. Last evening, Romney made it clear that “the Federal Reserve has a responsibility to preserve the value of our currency, to have a strong American currency, such that investors and people who are thinking about bringing enterprises to this country have confidence in the future of America and in our currency.”
As for Governor Perry, he too spoke against the devalued dollar and argued for a “sound monetary policy” with a strong dollar. Perry also repeated his charge of a month ago that if the Fed conducts policy for “political purposes” it would be “almost treasonous.” While I personally disagree with Bernanke’s QE2 dollar-depreciation, which harmed the economy, I still believe the word “treasonous” is inappropriate. (I argued this point in an August column, “Perry’s Red-Hot Bernanke Slam.”) But Perry’s push for a reliable King Dollar is spot on.
What is noteworthy about all this is the growing likelihood that a Republican president following the November 2012 election will appoint a new man at the Fed to conduct a new strong-dollar policy. Reagan used King Dollar in his first term to conquer inflation and ignite tax-cut incentives to grow the economy. Bill Clinton used a strong dollar in his second term to spur the economy. But we’ve had a weak-dollar policy during the George W. Bush and Barack Obama years as the economy has badly sputtered.
A second point on the debate: Neither frontrunner outlined a true reform plan for Social Security. So far as I recall, Romney and Perry avoided commitment to extending the retirement age, shifting cost-of-living adjustments, or establishing personal savings accounts. At some point, as the Ponzi issue over Social Security continues, they are both going to have to play their cards and talk specifically about solving the problem.
That said, both leading candidates agree on flatter-tax reform, light regulations, and a strong currency. That’s a pro-growth economic policy mix. Obviously, it’s totally different from what President Obama is offering.
Rumors In Europe Causing Short-Covering
The market was lower most of the day yesterday until late rumors surfaced that China might be willing to buy up some Italian debt. That caused the shorts to scramble, and the market rallied strong into the close. Although volume still finished below that of Friday's levels.
I doubt that China is looking to buy much sovereign debt in Europe. Maybe they would be looking to buy into strategic companies, like oil companies (Eni), electric producers, etc. Those would be strategic investments for China, not simply trying to throw the continent a lifeline.
This morning, the futures were lower until more rumors surfaced that Germany and France may be meeting to announce some support for Greece. So it seems like a lot of people are leaning short, but skittishly so as they look to cover those shorts on any perceived positive news out of Europe.
This type of volatility is one of the reasons that the VIX remains at extreme elevated levels. Despite this morning's rally, the VIX is still higher at 38.75. And Friday's options expiration will likely keep volatility elevated this week.
In corporate news, Best Buy (BBY) reported earnings that fell short of consensus. As a result, the stock is getting hit for -8% currently.
The dollar is lower today, which is boosting commodities. Oil prices have rallied back to $89, while gold prices are also higher near $1827.
The 10-year yield is trying to get back above 2.00%, but not having much luck so far. I recently added to my TBT position looking for at least a small bounce in yields.
Trading comment: The SPX has bounced a quick 30 points from yesterday's lows, and it is hard to tell which way options expiration will exert its force on the market for the rest of the week. But as I have said, until we get some actual improvement in the landscape (as opposed to rumors) I am maintaining our defensive posture and fading most rallies.
long TBT, SH
I doubt that China is looking to buy much sovereign debt in Europe. Maybe they would be looking to buy into strategic companies, like oil companies (Eni), electric producers, etc. Those would be strategic investments for China, not simply trying to throw the continent a lifeline.
This morning, the futures were lower until more rumors surfaced that Germany and France may be meeting to announce some support for Greece. So it seems like a lot of people are leaning short, but skittishly so as they look to cover those shorts on any perceived positive news out of Europe.
This type of volatility is one of the reasons that the VIX remains at extreme elevated levels. Despite this morning's rally, the VIX is still higher at 38.75. And Friday's options expiration will likely keep volatility elevated this week.
In corporate news, Best Buy (BBY) reported earnings that fell short of consensus. As a result, the stock is getting hit for -8% currently.
The dollar is lower today, which is boosting commodities. Oil prices have rallied back to $89, while gold prices are also higher near $1827.
The 10-year yield is trying to get back above 2.00%, but not having much luck so far. I recently added to my TBT position looking for at least a small bounce in yields.
Trading comment: The SPX has bounced a quick 30 points from yesterday's lows, and it is hard to tell which way options expiration will exert its force on the market for the rest of the week. But as I have said, until we get some actual improvement in the landscape (as opposed to rumors) I am maintaining our defensive posture and fading most rallies.
long TBT, SH
12 Eylül 2011 Pazartesi
Monday Morning Musings
Another deja vu Monday with our markets opening up lower amid continued worries about the fiscal conditions in Europe. France's market is down sharply on news that three of their large financial institutions could have their debt ratings downgraded.
Asian markets were also down sharply overnight, with Hong Kong -4.2% lower but China was closed.
It has already been a volatile morning, with our markets opening lower but then rallying all the way back into positive territory. Currently, the markets are fading a bit and giving back some of that rally.
The flight to safety is mixed today, with Treasury prices flat and the 10-year yield steady at 1.92%. Gold prices are also lower to $1834, while oil prices are actually up a bit around $87.50.
The volatility index (VIX) is on the move again, rising +7% to 41.30 currently. That said, it continues to make a series of lower lows on the last 4 spikes higher on the chart.
In corporate news, Broadcom (BRCM) announced it will acquire NetLogic (NETL) for a 50% premium. Anyone who is long NETL this morning is feeling pretty good.
Trading comment: Until the news in Europe improves, all rallies seem temporary in nature. We continue to remain defensive and have been adding to our hedges on any large rallies. The earnings estimates for the S&P 500 for 2012 are starting to be revised downward, and that will be an important development. The ECRI weekly growth index fell deeper into negative territory last week.
long SH; short EFA
Asian markets were also down sharply overnight, with Hong Kong -4.2% lower but China was closed.
It has already been a volatile morning, with our markets opening lower but then rallying all the way back into positive territory. Currently, the markets are fading a bit and giving back some of that rally.
The flight to safety is mixed today, with Treasury prices flat and the 10-year yield steady at 1.92%. Gold prices are also lower to $1834, while oil prices are actually up a bit around $87.50.
The volatility index (VIX) is on the move again, rising +7% to 41.30 currently. That said, it continues to make a series of lower lows on the last 4 spikes higher on the chart.
In corporate news, Broadcom (BRCM) announced it will acquire NetLogic (NETL) for a 50% premium. Anyone who is long NETL this morning is feeling pretty good.
Trading comment: Until the news in Europe improves, all rallies seem temporary in nature. We continue to remain defensive and have been adding to our hedges on any large rallies. The earnings estimates for the S&P 500 for 2012 are starting to be revised downward, and that will be an important development. The ECRI weekly growth index fell deeper into negative territory last week.
long SH; short EFA
9 Eylül 2011 Cuma
Obama Talks Big Game, Sparks Little Enthusiasm
Last night Obama unveiled his big jobs plan, but it looks like it did little to improve sentiment this morning. Maybe he should have been this diligent with his first fiscal stimulus plan.
Credit default swap prices are all higher this morning, with Greece surging to record highs. The market is acting like a Greek default is both a near certainty and also imminent.
Asian markets were lower overnight. Japan's Q2 GDP came in at -1.5%, and China's CPI eased a bit coming in at 6.2% for August. Europe is also lower this morning, with considerable pressure on the banks again.
The flight to safety trade is half on today. The dollar index is higher, reaching a five month high. And Treasury bonds are higher, pushing yields on the 10-year Note back down to 1.97%.
The higher dollar is pressuring most commodities, with oil prices pulling back to $87 and gold prices down slightly to $1850.
I have been talking about the stubbornly high VIX index. Today it is another 11% higher to 38.0. The market has not had any calm days this week. It has been either up big or down big each day. As of now, the SPX is slightly negative for the week while the Nasdaq is still positive. We will have to see if we get any short-covering into the close.
Trading comment: Every time I begin to question my cautious stance we get hit with another vicious selloff that validates my thesis. Until we get some clarity out of Europe, better economic data in the U.S., or good news on the earnings front I don't see how the market can muster much more than the trading bounces we have seen. For the last month, the SPX has traded in a range between 1120 - 1220. It will be interesting to see which side of said range gets broken first.
Credit default swap prices are all higher this morning, with Greece surging to record highs. The market is acting like a Greek default is both a near certainty and also imminent.
Asian markets were lower overnight. Japan's Q2 GDP came in at -1.5%, and China's CPI eased a bit coming in at 6.2% for August. Europe is also lower this morning, with considerable pressure on the banks again.
The flight to safety trade is half on today. The dollar index is higher, reaching a five month high. And Treasury bonds are higher, pushing yields on the 10-year Note back down to 1.97%.
The higher dollar is pressuring most commodities, with oil prices pulling back to $87 and gold prices down slightly to $1850.
I have been talking about the stubbornly high VIX index. Today it is another 11% higher to 38.0. The market has not had any calm days this week. It has been either up big or down big each day. As of now, the SPX is slightly negative for the week while the Nasdaq is still positive. We will have to see if we get any short-covering into the close.
Trading comment: Every time I begin to question my cautious stance we get hit with another vicious selloff that validates my thesis. Until we get some clarity out of Europe, better economic data in the U.S., or good news on the earnings front I don't see how the market can muster much more than the trading bounces we have seen. For the last month, the SPX has traded in a range between 1120 - 1220. It will be interesting to see which side of said range gets broken first.
8 Eylül 2011 Perşembe
ECB Not Cutting Rates Yet
The markets were lower in early trading, but as of this post they are firming and moving back into positive territory. Yesterday the markets enjoyed a strong rally, bouncing back from 3 straight down days. But volume yesterday was again nothing to write home about.
The dollar is gaining at the expense of the euro after ECB President Trichet relayed a downward revision to GDP forecasts for the eurozone. Thanks, Jean. Everyone knows growth is slowing. So why don't you lower interest rates instead of keeping them at 1.50%? You will cave eventually, so why not get out in front of the data? Silly.
Tech is leading the early action, while financials are lagging so far today.
The weak dollar has helped push gold prices higher to $1853, and oil prices are also up to $89.65.
The 10-year yield is flat around 2.02%; and the VIX is slightly lower to 32.80. For this rally to have legs, I think we need to see more of an allocation out of bonds and into stocks. That means we would have to see the yield on the 10-year move higher. I also think we need to see the VIX come down even more. It remains at historically elevated levels.
One indicator moving in the right direction is the AAII survey. Bears are now 40%, which exceeds the number of bulls (30%) by a healthy margin. We need to see bearish sentiment hit extreme levels in order for the selling to exhaust itself, and this is a step in the right direction.
This morning we will hear a speech from Bernanke at the Minnesota Economic Club, which could move the markets although I doubt we will hear much new stuff. And later tonight we will hear Obama's new jobs plan, which I have very little faith will actually have a big impact on the high unemployment rate.
Trading comment: I want to highlight that there are some stocks acting well during this market bounce. VRUS is making new highs; LULU looks like it could be breaking out again; JAZZ is at new highs; MJN is acting very well; AAPL has continued to hold up well; PSMT is also right near its highs. So it's okay to hold stocks exhibiting excellent relative strength. But rallies should be used to get rid of lagging stocks, and overall long exposure should be hedged to be safe. I prefer using the inverse index ETFs to hedge my downside exposure. Hope that helps.
long AAPL, PSMT, LULU, VRUS
The dollar is gaining at the expense of the euro after ECB President Trichet relayed a downward revision to GDP forecasts for the eurozone. Thanks, Jean. Everyone knows growth is slowing. So why don't you lower interest rates instead of keeping them at 1.50%? You will cave eventually, so why not get out in front of the data? Silly.
Tech is leading the early action, while financials are lagging so far today.
The weak dollar has helped push gold prices higher to $1853, and oil prices are also up to $89.65.
The 10-year yield is flat around 2.02%; and the VIX is slightly lower to 32.80. For this rally to have legs, I think we need to see more of an allocation out of bonds and into stocks. That means we would have to see the yield on the 10-year move higher. I also think we need to see the VIX come down even more. It remains at historically elevated levels.
One indicator moving in the right direction is the AAII survey. Bears are now 40%, which exceeds the number of bulls (30%) by a healthy margin. We need to see bearish sentiment hit extreme levels in order for the selling to exhaust itself, and this is a step in the right direction.
This morning we will hear a speech from Bernanke at the Minnesota Economic Club, which could move the markets although I doubt we will hear much new stuff. And later tonight we will hear Obama's new jobs plan, which I have very little faith will actually have a big impact on the high unemployment rate.
Trading comment: I want to highlight that there are some stocks acting well during this market bounce. VRUS is making new highs; LULU looks like it could be breaking out again; JAZZ is at new highs; MJN is acting very well; AAPL has continued to hold up well; PSMT is also right near its highs. So it's okay to hold stocks exhibiting excellent relative strength. But rallies should be used to get rid of lagging stocks, and overall long exposure should be hedged to be safe. I prefer using the inverse index ETFs to hedge my downside exposure. Hope that helps.
long AAPL, PSMT, LULU, VRUS
Over Lava Fields & Through Salt Flats to Wakan Tanka's We Go
I hitched out of Oregon, intending to land in Moab, Utah, but bipassed it and landed here in western Colorado. I thoroughly enjoyed the people on this trip.
Bye Bye Timo & Logan
Yeah, the summer whizzed by and it felt time to migrate south again and say goodbye to Timo and Logan. Logan walked me to a hitching spot outside of Redmond, carrying the guitar for me.
It wasn't long before an 84-year-old man named Bill stopped to take me to Bend. He lived there in Redmond, with his wife. It turns out he'd been in the army of occupation with my dad in Japan at the end of World War II! My dad says, after all these years, he's never once met anybody else who'd been in Japan at that time. Bill offered me lunch, but I'd already eaten, so I settled for a rootbeer.
My next ride was from an easy-going 60-something country/blues pony-tailed musician named Dale who cussed like a sailor and had a strong belief in the providence of God. He said he'd once played with Robert Cray. He gave me food and let me off in Burns.
I found a variety of fruit at the grocery "specialty section" there, then bedded down for the night in a mint patch in a cow field by a canal and woke up covered in dew. I guitar-jammed as I waited for my bag to dry in the rising sun.
After hitching for a while, a young dude in a dented Suburu with a crazed look in his eyes pulled up and told me this was one of the most dangerous counties for hitch-hiking in the country, that it was the "city of Satan". "Beware and God bless!" he said as he pounced the gas and sped off. I simply couldn't keep from smiling, couldn't bring myself to even begin to be afraid. In fact, I oddly felt a stronger sense of peace than before. I'd hitched several times before through this same area, no prob.
Fear is self-fulfilling prophecy, and our society is running on it, more and more. Fear fuels the money economy. Love erases fear.
Cowboy Enlightenment
Within minutes, an old, white stretch-limosine sporting a pair of longhorns mounted with welded horseshoes pulled up on the other side of the road. A 27-year-old smiling dude dressed to the hilt as a cowboy, spurs and all, got out and asked where I was headed. "Utah, via Winnemucca," I said. "I'm heading through Winnemucca tomorrow," he said, "but first I'm going to a rodeo in Lakeview, if you want to join me!" he said. Lakeview was in the opposite direction. I totally loved the good-natured vibe of that cowboy and didn't hesitate to hop in his limo with his loveable border collie. I had no idea where Lakeview was and remembered what that crazed guy before had said, thinking maybe I should beware. But all my instincts said this cowboy was a primo human being. And he was. He was a real cowboy (no wanna-be) named Seth, from generations of real cowboys, and he kept me smiling non-stop the next couple days, with his intriguing stories and good conversation. On our way to Lakeview, he had to stop at a ranch and shoe a horse, me as his assistant. He put a smile on the face of everyone he encountered. I regarded Seth an enlightened being, cowboy and all, to my surprise.
We stayed at the rodeo all night. He roped a couple steers there. Afterward, he ended up drinking all night with his cowboy buddies, but old-man-me ended up crashing early in my sleeping bag on the grass. Even hung over early next morn, Seth was as even-keel good-natured as usual. He gave me breakfast and we headed east through Nevada, through Winnemucca, then he let me off in Wells. He was heading to another rodeo in Twin Falls, Idaho, to ride broncos. He invited me there, too. Tempting, but I decided it'd be easier to hitch east from Wells.
After "shopping" behind the grocery store in Wells, I settled in for the night with my delicious loot under a bridge by the rails, on the chance a train might decide to stop there. No such luck, but a good night sleep.
Across Deseret
Next morning a spunky 50-something woman named Ann with her young son, Philip, and 2 dogs, picked me up in a U-Haul. They were moving back to Utah from California. Unusually friendly and fun, they were. She took me across the salt flats and, thankfully, bipassed Salt Lake City and let me off in Heber city.
A strikingly good-looking, way-friendly 20-something blond woman named Michaela, with piercing grey-blue eyes, stopped for me in her sporty new car. She was a beautician and rock-climber was totally intrigued by the vagabond lifestyle, wanting to live that way herself. She let me off in Provo.
The next day a 20-something musician named Jeff took me to highway 6 to a better hitch spot. He said he'd struggled for years with depression and heroin and had a close friend who'd recently killed himself. He gave me some guitar-playing tips. I'm quite sure the guitar is helping me get rides, and with pleasant people at that. At least most of the time.
A couple way clean-cut 20-something boys then took me a short ways down the highway. They asked me about what I did. When I told them I'd renounced money, they went totally silent and looked at me funny.
A 70-something guy took me to Soldier Summit (where he lived), and spoke of how he had always hitched that route as a boy, going to school and basketball practice. He also went silent when I told him I'd renounced money.
Past Moab to Western Colorado
By this time I was thinking I might want to bipass Moab and visit my parents in Fruita, Colorado, since it was my mom's 84th birthday, and I hadn't seen them for months. I decided if a ride came that was going as far as Colorado, I'd skip Moab and visit my parents. A way friendly 30-year-old Mexican-American from LA, named Mike, driving a truck, with his pit bull, stopped and said he was going as far as Denver. He asked me to play guitar. I finally got to play the 4 Spanish songs I knew to a Mexican, and he knew one of them. He said he used to sing Spanish songs in his church's praise band. He also gave me food and took me all the way to Fruita.
Now I'm at my parents'. My sister and her hubbie and my brothers are coming next week for a little reunion, maybe with my sis-in-law and nephew, so I'll probably stay for that.
Book and Blog Stuff
Oh, yeah, Mark said the book is becoming pretty much "official" and has a Facebook page (The Man Who Quit Money). It feels like a dream, sort of. I'm a bit nervous, but my ego is also tripping, of course.
Funny, the popularity of this blog went way down after my "Operation Bank Bust" a couple posts ago. Ah, threatening the world's Most Sacred Cow by doing nothing but neglecting the poor creature.
Bye Bye Timo & Logan
Yeah, the summer whizzed by and it felt time to migrate south again and say goodbye to Timo and Logan. Logan walked me to a hitching spot outside of Redmond, carrying the guitar for me.
It wasn't long before an 84-year-old man named Bill stopped to take me to Bend. He lived there in Redmond, with his wife. It turns out he'd been in the army of occupation with my dad in Japan at the end of World War II! My dad says, after all these years, he's never once met anybody else who'd been in Japan at that time. Bill offered me lunch, but I'd already eaten, so I settled for a rootbeer.
My next ride was from an easy-going 60-something country/blues pony-tailed musician named Dale who cussed like a sailor and had a strong belief in the providence of God. He said he'd once played with Robert Cray. He gave me food and let me off in Burns.
I found a variety of fruit at the grocery "specialty section" there, then bedded down for the night in a mint patch in a cow field by a canal and woke up covered in dew. I guitar-jammed as I waited for my bag to dry in the rising sun.
After hitching for a while, a young dude in a dented Suburu with a crazed look in his eyes pulled up and told me this was one of the most dangerous counties for hitch-hiking in the country, that it was the "city of Satan". "Beware and God bless!" he said as he pounced the gas and sped off. I simply couldn't keep from smiling, couldn't bring myself to even begin to be afraid. In fact, I oddly felt a stronger sense of peace than before. I'd hitched several times before through this same area, no prob.
Fear is self-fulfilling prophecy, and our society is running on it, more and more. Fear fuels the money economy. Love erases fear.
Cowboy Enlightenment
Within minutes, an old, white stretch-limosine sporting a pair of longhorns mounted with welded horseshoes pulled up on the other side of the road. A 27-year-old smiling dude dressed to the hilt as a cowboy, spurs and all, got out and asked where I was headed. "Utah, via Winnemucca," I said. "I'm heading through Winnemucca tomorrow," he said, "but first I'm going to a rodeo in Lakeview, if you want to join me!" he said. Lakeview was in the opposite direction. I totally loved the good-natured vibe of that cowboy and didn't hesitate to hop in his limo with his loveable border collie. I had no idea where Lakeview was and remembered what that crazed guy before had said, thinking maybe I should beware. But all my instincts said this cowboy was a primo human being. And he was. He was a real cowboy (no wanna-be) named Seth, from generations of real cowboys, and he kept me smiling non-stop the next couple days, with his intriguing stories and good conversation. On our way to Lakeview, he had to stop at a ranch and shoe a horse, me as his assistant. He put a smile on the face of everyone he encountered. I regarded Seth an enlightened being, cowboy and all, to my surprise.
We stayed at the rodeo all night. He roped a couple steers there. Afterward, he ended up drinking all night with his cowboy buddies, but old-man-me ended up crashing early in my sleeping bag on the grass. Even hung over early next morn, Seth was as even-keel good-natured as usual. He gave me breakfast and we headed east through Nevada, through Winnemucca, then he let me off in Wells. He was heading to another rodeo in Twin Falls, Idaho, to ride broncos. He invited me there, too. Tempting, but I decided it'd be easier to hitch east from Wells.
After "shopping" behind the grocery store in Wells, I settled in for the night with my delicious loot under a bridge by the rails, on the chance a train might decide to stop there. No such luck, but a good night sleep.
Across Deseret
Next morning a spunky 50-something woman named Ann with her young son, Philip, and 2 dogs, picked me up in a U-Haul. They were moving back to Utah from California. Unusually friendly and fun, they were. She took me across the salt flats and, thankfully, bipassed Salt Lake City and let me off in Heber city.
A strikingly good-looking, way-friendly 20-something blond woman named Michaela, with piercing grey-blue eyes, stopped for me in her sporty new car. She was a beautician and rock-climber was totally intrigued by the vagabond lifestyle, wanting to live that way herself. She let me off in Provo.
The next day a 20-something musician named Jeff took me to highway 6 to a better hitch spot. He said he'd struggled for years with depression and heroin and had a close friend who'd recently killed himself. He gave me some guitar-playing tips. I'm quite sure the guitar is helping me get rides, and with pleasant people at that. At least most of the time.
A couple way clean-cut 20-something boys then took me a short ways down the highway. They asked me about what I did. When I told them I'd renounced money, they went totally silent and looked at me funny.
A 70-something guy took me to Soldier Summit (where he lived), and spoke of how he had always hitched that route as a boy, going to school and basketball practice. He also went silent when I told him I'd renounced money.
Past Moab to Western Colorado
By this time I was thinking I might want to bipass Moab and visit my parents in Fruita, Colorado, since it was my mom's 84th birthday, and I hadn't seen them for months. I decided if a ride came that was going as far as Colorado, I'd skip Moab and visit my parents. A way friendly 30-year-old Mexican-American from LA, named Mike, driving a truck, with his pit bull, stopped and said he was going as far as Denver. He asked me to play guitar. I finally got to play the 4 Spanish songs I knew to a Mexican, and he knew one of them. He said he used to sing Spanish songs in his church's praise band. He also gave me food and took me all the way to Fruita.
Now I'm at my parents'. My sister and her hubbie and my brothers are coming next week for a little reunion, maybe with my sis-in-law and nephew, so I'll probably stay for that.
Book and Blog Stuff
Oh, yeah, Mark said the book is becoming pretty much "official" and has a Facebook page (The Man Who Quit Money). It feels like a dream, sort of. I'm a bit nervous, but my ego is also tripping, of course.
Funny, the popularity of this blog went way down after my "Operation Bank Bust" a couple posts ago. Ah, threatening the world's Most Sacred Cow by doing nothing but neglecting the poor creature.
7 Eylül 2011 Çarşamba
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.MARKETS
- Brian Kelly, Brian Kelly Capital President
- Brett Arends, Wall Street Journal Columnist
- Jack Bouroudjian, Index Futures Group CEO
SHOULD BofA BE BROKEN UP? IS MOYNIHAN NEXT?
- CNBC’s John Carney discusses the latest.
CORNER OFFICE PERSPECTIVE ON ENERGY, JOBS & THE ECONONY
- Tom Farrell, Dominion Resources CEO
OBAMA'S JOBS PLAN PREVIEW
- CNBC's John Harwood reports.
REPATRIATION TAX STUDY
- Douglas Holtz-Eakin, Fmr. CBO Director; Fmr. White House Chief Economist; American Action Forum President
OBAMA JOBS PLAN
- Howard Dean, (D) Former Vermont Governor; Fmr. Democratic National Committee Chairman
- Dick Armey, FreedomWorks Co-Chairman
GOP DEBATE PREVIEW: ROMNEY V. PERRY -- WHO CAN BEAT OBAMA?
- Ford O'Connell, CivicForumPAC Chmn
- Jimmy Pethokoukis, Reuters Breakingviews: Money & Politics Columnist; CNBC Contributor
- Steve Forbes, Forbes Media Chairman & Editor-in-Chief
Sigh of Relief In Germany
The markets are nicely higher in early trading after a German court rejected a lawsuit intended to block Germany's participation in EU bailouts. Europe needs Germany's support in a big way, so this lawsuit had many investors worried.
Before Europe opened, Asian markets were also higher overnight, and our markets opened higher as well. The flight to safety trade that I talked about yesterday is being sold today. All 3 safehavens are lower.
To wit, Treasury prices are lower, pushing the 10-year yield up to 2.03%. The dollar is also lower today, helping to boost most commodities. But gold prices are off sharply, falling back to $1815.
In corporate news, Yahoo finally got rid of CEO Carol Bartz, and the stock is rallying.
I mentioned yesterday that the VIX was making a series of lower highs. Today, the VIX is down -8% to 34.15. It has not traded below the 30 level in over a month. I suspect we will get back down there at some point this month, but it will be interesting to see if it bounces higher from its 50-day average, if and when.
Trading comment: Given the poor start to the month, I wouldn't' be surprised to see the market lift a little higher in the short-term. But I am still not changing my intermediate-term game plan of remaining defensive. I am only looking to add to stocks that are both defensive and high-yielding. I also want to add back to some of the index etf hedges I took off in late August.
Before Europe opened, Asian markets were also higher overnight, and our markets opened higher as well. The flight to safety trade that I talked about yesterday is being sold today. All 3 safehavens are lower.
To wit, Treasury prices are lower, pushing the 10-year yield up to 2.03%. The dollar is also lower today, helping to boost most commodities. But gold prices are off sharply, falling back to $1815.
In corporate news, Yahoo finally got rid of CEO Carol Bartz, and the stock is rallying.
I mentioned yesterday that the VIX was making a series of lower highs. Today, the VIX is down -8% to 34.15. It has not traded below the 30 level in over a month. I suspect we will get back down there at some point this month, but it will be interesting to see if it bounces higher from its 50-day average, if and when.
Trading comment: Given the poor start to the month, I wouldn't' be surprised to see the market lift a little higher in the short-term. But I am still not changing my intermediate-term game plan of remaining defensive. I am only looking to add to stocks that are both defensive and high-yielding. I also want to add back to some of the index etf hedges I took off in late August.
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