If you follow the markets as avidly as I do, this is already old news to you but Friday Obama announced tariffs on tires coming from China. When I read that news my mouth dropped to the floor. I couldn't believe it. Immediately the question became what if anything will China do. It didn't take long.
From Bloomberg:
China announced a probe into the alleged dumping of American auto and chicken products, two days after U.S. President Barack Obama imposed tariffs on imports of tires from the Asian nation.
This has the potential to be the catalyst to start the next long decline in the markets. China is obviously trying to compromise at this point sense the it is a "probe" which means they are giving Obama a chance to withdraw the tire tariffs. At this point, Obama has backed himself into a corner politically. It would seem difficult to completely withdraw the tariff.
Why is this so important? The tariffs of the 1930s was one of the top culprits of the severity of the Depression. No one wins. It sounds good often times politically and even on paper but a wave of protectionism worldwide would crush the recovery. Also, at this point, the markets are not running off fundamentals, but off of pyschology. This could be the change at the margin that shifts supply and demand where more shares are being sold than bought.
I am not saying it will be and Obama and China still control the outcome but it could be the game changer.
Something to watch longer term is the debt levels being run by the government. According to a new report by the European Commission it could very ugly for the UK very quickly.
From the Telegraph:
Britain's public debt will explode to 180pc of GDP within a decade unless future governments take drastic measures to restore fiscal probity, according to a confidential study by the European Commission.
The projection is more than twice the level forecast by the UK Treasury, which expects the debt to peak at around 80pc before gradually falling as growth revives and tax revenues come back to life.
and
Debt anywhere near 180pc of GDP today would test the UK Gilt market to destruction. While Japan is still able to fund an even higher level of debt without paying exorbitant rates, it is does not depend on foreigners to cover the bond auctions.
Sunday, September 13, 2009
Saturday, September 12, 2009
Key Indicator Strength
Last Sunday I talked about the stock market technicals showing unbelievable strength bouncing off 992 and being manipulated above 1015 at the close a week ago Friday. I talked about the fact that for some stupid reason those levels matter and the probability seemed to favor the bulls.
Well this weekend if your a bear I don't have much more favorable things to report. The stock market went up but it was the rest of the investment universe that was so discouraging. High yield credit surged all week. This has set a high in early August and had been moving down to sideways for over the last month. This week it went up on a rocket ship closing just below the August high. If your a bear this has to be very discouraging because historically the high yield credit markets lead the equity markets. They peaked in September of 2007 while the equity markets went on to set new highs. They hit a bottom before the equity markets did in March. I did hear rumors of a big debt fund being forced out of shorts so it may be technical in nature but that is not a good sign especially if high yield credit manages to set new highs next week.
Other indicators aren't positive for the bears either. Europe surged to new highs, as did Dow Transports, the dollar continued its sell off, and China showed strength all week.
There are always bones for the bears. Oil did not set a new high and showed overall weakness especially considering the dollars weakness. Copper also did not participate in any rally. The Baltic Dry Index which I did a post on early was flat all week. Asia at this point is lagging Europe and North America. Treasuries rallied all week which is typically considered a flight to safety trade. Finally the overall strength of the new highs for the U.S. indexes looks weak with fewer and fewer stocks participating.
Looking at everything it just doesn't look right for a major top. Of course no one said it had to but I can't imagine how the equity markets will start going down if the high yield index keeps going up.
I am getting killed but everything in the markets at this point is not being driven by fundamentals and it is hard for me to adjust because I don't consider myself a trader. Primarily is it being driven by the dollar continuing to sell off. THe problem with that though is a weak currency isn't the road to prosperity. If that was the case Zimbabwe would be the richest country on earth. Yeah for now it powers the markets unexplainablly higher.
Well this weekend if your a bear I don't have much more favorable things to report. The stock market went up but it was the rest of the investment universe that was so discouraging. High yield credit surged all week. This has set a high in early August and had been moving down to sideways for over the last month. This week it went up on a rocket ship closing just below the August high. If your a bear this has to be very discouraging because historically the high yield credit markets lead the equity markets. They peaked in September of 2007 while the equity markets went on to set new highs. They hit a bottom before the equity markets did in March. I did hear rumors of a big debt fund being forced out of shorts so it may be technical in nature but that is not a good sign especially if high yield credit manages to set new highs next week.
Other indicators aren't positive for the bears either. Europe surged to new highs, as did Dow Transports, the dollar continued its sell off, and China showed strength all week.
There are always bones for the bears. Oil did not set a new high and showed overall weakness especially considering the dollars weakness. Copper also did not participate in any rally. The Baltic Dry Index which I did a post on early was flat all week. Asia at this point is lagging Europe and North America. Treasuries rallied all week which is typically considered a flight to safety trade. Finally the overall strength of the new highs for the U.S. indexes looks weak with fewer and fewer stocks participating.
Looking at everything it just doesn't look right for a major top. Of course no one said it had to but I can't imagine how the equity markets will start going down if the high yield index keeps going up.
I am getting killed but everything in the markets at this point is not being driven by fundamentals and it is hard for me to adjust because I don't consider myself a trader. Primarily is it being driven by the dollar continuing to sell off. THe problem with that though is a weak currency isn't the road to prosperity. If that was the case Zimbabwe would be the richest country on earth. Yeah for now it powers the markets unexplainablly higher.
Thursday, September 10, 2009
Baltic Dry Index Leading the Stock Market
I mention from time to time the Baltic Dry Index, the Chinese stock market, the bond market etc looking for signs that the market is turning. The reason is because they experience shifts in liquidity and investor sentiment first. They are the first impacted. Societe Generale Albert Edwards had an interesting piece in his global strategy weekly about the leading nature of the Baltic Dry Index and produced the chart below. The original chart came from a blog called the Trader's Narrative I don't follow this blog and am not endorsing it. Anyway, very interesting graph. Points to another sign of a possible nearing top, even though at this point in the very short term it seems full steam ahead. Don't take this as Gospel. The leading nature of the Baltic dry index is definitely there but the correlation is not one.
Wednesday, September 9, 2009
Vacation Time?
My motiviation for blogging is really waning because nothing seems relevent to me. I could have done a very long post yesterday on the record drop in consumer credit. The implications for that are massive. Why bother? The market went up yesterday and today. The market doesn't care. The beige book today which showed "stabilization" could be worthy of a post. Market is pricing in 4% GDP growth so stabilization at this point should be a negative. NASDAQ set new highs today. Stocks that may possibly be cheap aren't going up (example could be Wal Mart which has gone nowhere for 6 months) while trash does not stop going up.
When you have JP Morgan upgrade GE yesterday because of sentiment and the stocks goes up 4%, you know your just living in loony land. How a massively funded fundamental equity shop can upgrade a company because of sentiment is beyond me. Goldman came with the second punch today also offering an upgrade. Of course Goldman at least tried to rationalize some fundamentals.
I could talk about Latvia and the new issues developing there. Same with Spain. I could talk about the growing danger signs of problems in option arms but none of it matters until it does. In the interim the market can keep going up on low volume with a few names driving the indexes higher. That is all that is relevent, currently.
Maybe it is just a month long vacation time. Keep the portfolio in place and forget about it. That would probably be best.
When you have JP Morgan upgrade GE yesterday because of sentiment and the stocks goes up 4%, you know your just living in loony land. How a massively funded fundamental equity shop can upgrade a company because of sentiment is beyond me. Goldman came with the second punch today also offering an upgrade. Of course Goldman at least tried to rationalize some fundamentals.
I could talk about Latvia and the new issues developing there. Same with Spain. I could talk about the growing danger signs of problems in option arms but none of it matters until it does. In the interim the market can keep going up on low volume with a few names driving the indexes higher. That is all that is relevent, currently.
Maybe it is just a month long vacation time. Keep the portfolio in place and forget about it. That would probably be best.
Tuesday, September 8, 2009
Market Open Update
The fishy open led to a sell off close to breakeven for the indexes, commodities stabilized and are now moving up again. Business as normal. Volume has now dried up, looks like a tight range to drifting higher.
Market Open
In a weird way this market gap open so far I actually think is somewhat bearish. Gold opened right at all time highs. Now is selling off. Copper opened right at 10 month highs, is now selling off. Dollar broke down to 77, now is reversing. This could get very interesting. Watch the dollar and commodities. If this gap open in the equity markets is not false, the commodities will tell you. We made be headed to new highs but not convinced...just yet.
Monday, September 7, 2009
Stocks Headed Higher?
Happy Labor Day to all. Hope the grills are roaring and the ski boats purring.
Wall St. returns to "work" tomorrow after the typical month vacation. I am not very hopeful that sanity will return with it. Friday was very bad for the bears. I pounded on three levels last week. 975ish, 992, and 1015. Why these technical levels? Because outside just a few stocks where maybe the fundamentals are being looked at, that is all that seems to matter. Anyway, sure enough, we bounced off 992 twice. Complete failure to even test 975 and on a day where Wall St. was deader than a prehistoric dinosaur, the computers or couple of investors managed to push the indexes to finish above 1015 at 1016. Why does that level matter? I honestly have no idea. I have never understood why technicals at times matter but I know they do. On a weekly closing basis we did not close below 1015 and the chart technicians will consider that bullish. Don't think traders didn't know this. On Friday it was ridiculous. Nobody was around with volume non existant especially in the futures but you had two burst of volume. One at 11:00 which is where most of the day's advance occurred to get the S&P 500 to 1013 and then it went dead again trading at a very tight range. The second burst of volume occurred at 2:55 (central time) which pushed the futures above 1015. Classic control play by someone trading the markets.
There are other things working against the bears. China is now up 5 days in a row, the Baltic Dry Index bottomed on August 25th, and the dollar is once again sliding.
If we have reached the top, no one says it will be easy. It can fool alot of people bouncing between 1000 and 1040 before finally breaking down. On the flip side, we could very easily be headed for 1100 if we haven't reached our top. Ideally, if we have reached a top we will sell off hard at the open tomorrow (maybe open a few points higher first). Honestly, I am not that confident that the markets will do that. In the short term it all seems fairly bullish to me and I would say from a probability perspective it seems like we will make new highs. Unfortunately that probability scenario in my mind is close to 50 to 50 (it leans slightly bullish) so hard to make a bet on.
Wall St. returns to "work" tomorrow after the typical month vacation. I am not very hopeful that sanity will return with it. Friday was very bad for the bears. I pounded on three levels last week. 975ish, 992, and 1015. Why these technical levels? Because outside just a few stocks where maybe the fundamentals are being looked at, that is all that seems to matter. Anyway, sure enough, we bounced off 992 twice. Complete failure to even test 975 and on a day where Wall St. was deader than a prehistoric dinosaur, the computers or couple of investors managed to push the indexes to finish above 1015 at 1016. Why does that level matter? I honestly have no idea. I have never understood why technicals at times matter but I know they do. On a weekly closing basis we did not close below 1015 and the chart technicians will consider that bullish. Don't think traders didn't know this. On Friday it was ridiculous. Nobody was around with volume non existant especially in the futures but you had two burst of volume. One at 11:00 which is where most of the day's advance occurred to get the S&P 500 to 1013 and then it went dead again trading at a very tight range. The second burst of volume occurred at 2:55 (central time) which pushed the futures above 1015. Classic control play by someone trading the markets.
There are other things working against the bears. China is now up 5 days in a row, the Baltic Dry Index bottomed on August 25th, and the dollar is once again sliding.
If we have reached the top, no one says it will be easy. It can fool alot of people bouncing between 1000 and 1040 before finally breaking down. On the flip side, we could very easily be headed for 1100 if we haven't reached our top. Ideally, if we have reached a top we will sell off hard at the open tomorrow (maybe open a few points higher first). Honestly, I am not that confident that the markets will do that. In the short term it all seems fairly bullish to me and I would say from a probability perspective it seems like we will make new highs. Unfortunately that probability scenario in my mind is close to 50 to 50 (it leans slightly bullish) so hard to make a bet on.
Saturday, September 5, 2009
Employment Numbers
In Daivd Rosenburg's note to clients yesterday, he made some interesting observations about the employment report. A few words of caution. Though David overall view of the world matches with mine nicely, I am actually not the biggest fan of reading his stuff (though I usually glance at it). In my opinion, he is a stereotypical sell side guy except he is bearish (which I understand is not stereotypical). He finds the data that matches his opinion and cherry picks through that data. All July he talked about Redbook numbers which were weak (measures store chain sales during the month), in August these numbers were actually pretty good and he never mentioned them. That stuff infuriates me. So far the numbers below, I have no context. Remember the employment report's data is calculated in two different ways. The unemployment percentage is calculated using a household survey. It determines how many people are looking for a job and who is in the workforce versus out of the workforce. The number of jobs lost is from the establishment survey (also called the nonfarm survey) which talks directly to companies. So David throws these numbers out from the household survey (which caused unemployment to go from 9.4 to 9.7%) but gives no context. So I am left wondering, is this really as bearish as he makes it sound or is it more normal? How could it be more normal? Easily, if things start improving and the news in the evenings starts talking about a rebound, discouraged workers (those who have given up hop in finding a job and aren't even looking and so are not part of the active workforce) all of a sudden start looking for jobs again. That is one reason historically the unemployment rate is always a lagging indicator. Surge in potential workers hit the market as things start to rebound.
Anyway, the paragraphs from David's report yesterday is below. It is interesting, it should make you do a double take but I don't have context or really know how bad that really is.
"What was really key were the details of the Household Survey, which provide a rather alarming picture of what is happening in the labour market.
First, employment in this survey showed a plunge of 392,000 but that number was flattered by a surge in self-employment (whether these newly minted consultants were making any money is another story) as wage & salary workers (the ones that work at companies, big and small) plunged 637,000 - the largest decline since March (when the stock market was testing its lows for the cycle). As an aside, the Bureau of Labor Statistics also publishes a number from the Household survey that is comparable to the nonfarm survey (dubbed the population and payroll-adjusted household number), and on this basis, employment sank - brace yourself - by over 1 million, which is unprecedented. We shall see if the nattering nabobs of positively discuss that particularly statistic in the post-payroll assessments: were are not exactly holding our breath."
Anyway, the paragraphs from David's report yesterday is below. It is interesting, it should make you do a double take but I don't have context or really know how bad that really is.
"What was really key were the details of the Household Survey, which provide a rather alarming picture of what is happening in the labour market.
First, employment in this survey showed a plunge of 392,000 but that number was flattered by a surge in self-employment (whether these newly minted consultants were making any money is another story) as wage & salary workers (the ones that work at companies, big and small) plunged 637,000 - the largest decline since March (when the stock market was testing its lows for the cycle). As an aside, the Bureau of Labor Statistics also publishes a number from the Household survey that is comparable to the nonfarm survey (dubbed the population and payroll-adjusted household number), and on this basis, employment sank - brace yourself - by over 1 million, which is unprecedented. We shall see if the nattering nabobs of positively discuss that particularly statistic in the post-payroll assessments: were are not exactly holding our breath."
Wednesday, September 2, 2009
The Benefits of Deflation
If you can protect your wealth there are some major benefits of living in an environment we currently live in. Last spring I bought two pairs of jeans, one of which normally retails for over $150 and the other that normally retails for over $80 for $30 and $45 respectively. Considering I dislike the experience of shoping for clothes immensly and rarely do it, it made the experience quite enjoyable.
Well calculated risk had an article on the Maui Prince Hotal being pushed into foreclosure by Wells Fargo.
Well thought I would do a little research and see what kind of deals the Maui Prince Hotel was offering if they are on the verge of foreclosure. According to their website their are many different packages to choose from. You can get the 3rd night free promotion for $298 a night. That works out to $200 a night including the free night. For what looks like a top class resort in Maui, that is a deal!!! You can get the 2009 prince special which comes with the prince room, breakfast, and rental car for $389 a night.
The Lexington Plaza Waterfront Hotel in Stockton California (east of San Franciso and Oakland) is also in trouble. The destination is nowhere near as appealing as Maui but the price is right for what looks like a nice hotel. Special offer of 2 nights for a total of $179.95.
Well calculated risk had an article on the Maui Prince Hotal being pushed into foreclosure by Wells Fargo.
Well thought I would do a little research and see what kind of deals the Maui Prince Hotel was offering if they are on the verge of foreclosure. According to their website their are many different packages to choose from. You can get the 3rd night free promotion for $298 a night. That works out to $200 a night including the free night. For what looks like a top class resort in Maui, that is a deal!!! You can get the 2009 prince special which comes with the prince room, breakfast, and rental car for $389 a night.
The Lexington Plaza Waterfront Hotel in Stockton California (east of San Franciso and Oakland) is also in trouble. The destination is nowhere near as appealing as Maui but the price is right for what looks like a nice hotel. Special offer of 2 nights for a total of $179.95.
Tuesday, September 1, 2009
Growl of the Bear
The knockdown the bears experienced yesterday, they got back up delivered their own blow while taking a pound of flesh in the process. It is never the news, it is the reaction to the news and the reaction to the news started weakening last week. This week, the gates opened.
I have been repeatedly pointing to the 1015 level as very very important. We bounced off it numerous times yesterday. Tried to hold it today and then once we broke it, it was a race down. Breaking that increases the probabilities substantially that the August/September top that I have been looking for and talking about for months is finally in. We need to get below 970ish for me to firmly declare a top but the probability is looking really high. A move back above 1015 invalidates it all. We need to hold it. I would not be surprised if we get some sort of challenge in the days ahead.
If you lifted the hood on the market today and peered in, it was incredible. Over 3 million S&P 500 future contracts traded today. I haven't seen that outside of an option expiration day since March. Over 1.7 billion shares traded on the NYSE. Financials took it on the chin and even more importantly insurance companies led the way down. Dollar rallied and copper had a big reversal. Credit sold off and government bonds were bought. VIX spiraled higher. It was a complete bear day in every sense of the word.
If we have indeed topped, we aren't going straight down. As I have said before, I think last week and this week shows the peek of economic data. This seems to be what the market is telling you now also but there will be good data in the weeks ahead. In the short term between 970 and 1015 is chock full of technical junk. It could get ugly over the next few days / weeks. We need to hold 1015. That is a given. The next support level on the downside is 992 area though the 970 area as mentioned is the really big area.
If the market really does have a serious correction, my job will actually turn closer to normal where I can read a 10k with the idea that it may be something I actually want to invest in.
The news, besides the ISM number, was actually not that great. Pending home sales was very disapointing despite all the headline nonesense. It shows that existing home sales will probable decline month over month now. Not, not good. The cash for clunkers auto sales numbers also had to end up being a disapointment.
I am not ready to go all in short yet (I have alot of losses to recover from current shorts) but it won't be to terrible long where it will be safe to short bounces.
I have been repeatedly pointing to the 1015 level as very very important. We bounced off it numerous times yesterday. Tried to hold it today and then once we broke it, it was a race down. Breaking that increases the probabilities substantially that the August/September top that I have been looking for and talking about for months is finally in. We need to get below 970ish for me to firmly declare a top but the probability is looking really high. A move back above 1015 invalidates it all. We need to hold it. I would not be surprised if we get some sort of challenge in the days ahead.
If you lifted the hood on the market today and peered in, it was incredible. Over 3 million S&P 500 future contracts traded today. I haven't seen that outside of an option expiration day since March. Over 1.7 billion shares traded on the NYSE. Financials took it on the chin and even more importantly insurance companies led the way down. Dollar rallied and copper had a big reversal. Credit sold off and government bonds were bought. VIX spiraled higher. It was a complete bear day in every sense of the word.
If we have indeed topped, we aren't going straight down. As I have said before, I think last week and this week shows the peek of economic data. This seems to be what the market is telling you now also but there will be good data in the weeks ahead. In the short term between 970 and 1015 is chock full of technical junk. It could get ugly over the next few days / weeks. We need to hold 1015. That is a given. The next support level on the downside is 992 area though the 970 area as mentioned is the really big area.
If the market really does have a serious correction, my job will actually turn closer to normal where I can read a 10k with the idea that it may be something I actually want to invest in.
The news, besides the ISM number, was actually not that great. Pending home sales was very disapointing despite all the headline nonesense. It shows that existing home sales will probable decline month over month now. Not, not good. The cash for clunkers auto sales numbers also had to end up being a disapointment.
I am not ready to go all in short yet (I have alot of losses to recover from current shorts) but it won't be to terrible long where it will be safe to short bounces.
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