Tuesday, April 28, 2009

Live Hogs, Pork Bellies Down on Swine Flu Paranoia

Maybe I could just re-post yesterday's scribble about "trading sideways... or down", but that would be redundant. Still, just what was that market doing today? Where was the volatility, the movement, the fear factor, the monumental moves attributed to the "recovery" or earnings reports?

Today may have been the dullest day for trading stocks in many years, though it wasn't that much different than the past two. After an initial dip to 7950 - a loss of 70 points on the Dow - it quickly recovered and spent the rest of the day vacillating over and under the break even line and in between 8005 and 8090. It was a big, fat yawning festival.

While investors await either first quarter GDP (tomorrow) or more insight into the spread of swine flu (spreading fast: by this time next week, expect it to be a full blown pandemic with outbreaks in no less than 30 countries and deaths in 12), investors were pretty much stuck with what they'd bid up over the past 7 weeks, so, good luck to them. Meanwhile, there's no indication that the US and global economies are in any better condition than they were 6 months ago despite trillions of dollars n stimulus and bailouts and assorted programs.

Dow 8,016.95, -8.05 (0.10%)
NASDAQ 1,673.81, -5.60 (0.33%)
S&P 500 855.16, -2.35 (0.27%)
NYSE Composite 5,369.85, -19.98 (0.37%)

On the day, advancing issues beat out decliners, 3449-2949, and new lows surpassed new highs, 69-32. Most importantly, today was the second straight session in which volume was subdued, well below levels seen over the past few weeks of furious buying activity. We are now poised for a sell-off of major proportions. The trickle of selling the past two days will quickly turn to a raging torrent on any bad news. Investors are seeking reasons to take profits and disbelieve the "recovery" claptrap.

NYSE Volume 1,251,073,000
NASDAQ Volume 2,103,607,000

The somnambulant nature of the equity markets did not translate into commodities, where there were wild and wide price swings. Crude oil fell 22 cents, to $49.58, but bigger hits were taken in gold, down $14.60, to $893.60, silver, off 56 cents, to $12.43, lean hogs, down $2.35, to $66.30, and pork bellies, which fell $3.00, to $77.80. The falls in hogs and bellies were almost exclusively tied to swine flu paranoia, though there is absolutely no evidence that consumption of pork can lead to obtaining the flu virus.

Since markets are emotional by nature, expect what happened to pork bellies and the price of pork to occur in various other investment strata, including equities of all kinds. The argument that travel restrictions to some countries may hamper the earnings of some airlines, hotels and cruise lines may be plausible, but extending the argument - that overall swine flu fear might keep more people in their homes and away from large gatherings - takes a leap of faith.

Of course, one could blame the swine flu for further deterioration in the economy instead of admitting that the government's plans so far have failed. That's an easy one, and likely to be coming to a headline near you soon.

By 8:30 am tomorrow, when the Commerce Department releases its advance estimate on 1st quarter GDP, we should have a relatively good understanding of where we sit and how far stocks will need to be sold off. As corporate earnings dissipate from the scene, the market will be looking for other signals.

Deaths from swine flu will become a leading indicator of worldwide distress. You heard it here first.

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