This is an unusually strong market, even if volume indications do not verify such.
After a week of US Dollar jawboning and actual intervention, driving it off its lows against most of the raw material currencies - Brazil, Canada, Australia - and especially against the Euro, the US Dollar seems to have stabilized, taking US stock markets in the opposite direction.
There seems to be a concerted effort to eliminate the "risk trade" associated with the weak dollar, more than likely initiated by the Fed and US Treasury, under some darker moniker, no doubt, in advance of actual tightening by the Fed come this Spring or Summer at the latest. The risks associated with a weaker dollar are too great for the Fed and the rest of the developed nations to tolerate for long, so an unwinding of the carry trade has to be in the works, or so it seems.
Despite this effort, stocks barely stumbled in the week-long effort. There have been a number of casualties, but everybody with any experience in the markets knows that the liquidity-driven trade must be eventually replaced by a return to the normalcy of trading on fundamentals. The trick is to get it to happen somewhat seamlessly, without a huge downdraft in the already-heated markets.
The action this week kept the lid on stocks while giving quiet notice that the Fed and Treasury is not going to allow the US dollar to fall much further, if any.
Dow 10,318.16, -14.28 (0.14%)
NASDAQ 2,146.04, -10.78 (0.50%)
S&P 500 1,091.38, -3.52 (0.32%)
NYSE Composite 7,084.47, -33.17 (0.47%)
Stocks finished lower for the third straight session. Advancing issues were overshadowed by decliners, 3719-2713. It was the slightest margin of losers to winners of the past three days. New highs remained ahead of new lows, 127-64, which should be the case, as last year's ranges should not be difficult to beat. Highs should exceed lows all the way through March of next year and likely well beyond.
Volume was moderate, or, as the case may be, normal.
NYSE Volume 4,301,791,000
NASDAQ Volume 1,934,215,250
Once again, oil was caught up in the dollar trade, losing 74 cents, to $76.72. Gold continued on its own special track, now completely untethered from the dollar, up another $6.60, to $1,148.50, another closing high. Silver failed to keep pace, losing a penny, to $18.45.
The week was rather uneventful, though Dell's missing of targets and poor guidance was a highlight for the latter part of the week. The company seems to be in a very tight spot, with competition apparently eating into market share and margins, especially by HP, Acer and Toshiba.
Even after the small drop this week - between 1.25 and 2% on the major exchanges - the US stock rally that began in March of this year still appears to have some life remaining. Though stocks broke below the key 1100 mark on the S&P, that level should no longer provide strong resistance, since it was exceeded last week. While the skeptics will be weighing whether or not the rally has run out of steam, there's a pretty good bet that money managers will be diving right back in again on Monday, with money that needs to go to work. Unless the interventionists on the Dollar front overstep their mandate, stocks should continue apace until the end of the year.
Friday, November 20, 2009
Thursday, November 19, 2009
Perverse Dollar Trade Sends Stocks South
The US Dollar was stronger against most world currencies on Thursday. Stocks fell.
If that sounds odd to you, it should. The normal relationship of a strong dollar to strong stocks has been undercut in recent days as the new carry trade of borrowing cheap dollars and investing in risky equities has produced one of the more remarkable rallies of the past 100 years.
Sadly, it cannot continue. Eventually, days like today, when the dollar strengthens and stocks are obliterated as traders are forced to liquidate out of positions, will proliferate, killing the stock market rally. Either that, or, stocks continue to climb while we kill the dollar. Today's trading may have been illustrative in just how perverse and destructive the inverse relationship has become. One way or another, somebody's got to lose, when the truth is that a stronger dollar should encourage more investment in stocks and US companies, rather than the reverse.
There's a bit of illogic to this trade, so excuse me for thinking out loud here. If it's true that many of the hedge funds are already out of this market, then today's trade would not have occurred. There would have been honest bets on stocks, not liquidity-driven hedge-type activity. So, that argument is probably full of large holes.
Then there's the idea of trillions on the sidelines - some say as much as $3 trillion invested in money market funds, some more in bond funds and plenty in cash. Just because those people don't want to engage in the high risk of equities, it does not necessarily follow that they'll want to jump in when stocks are cheaper. Were that the case, they had ample opportunity back in the Winter of 2009-10. So, toss that rationale.
What makes sense is that the dollar will continue to weaken until the Fed signals that they're going to begin raising interest rates. Estimates of when that might happen range from June 2010 to some time in 2011. What's certain is that the Fed cannot keep rates at "near-zero" for much longer. Other nations have already begun raising interest rates - Australia and Norway to name two - while more are hinting at doing the same. When the Fed decides to begin raising rates the dollar will stop sliding against other currencies. It will actually begin gaining when our blessed federal government decides to start acting like adults and do something about the enormous deficits they are running.
Both of those events - Fed tightening and government responsibility - are inevitably tied to politics, and, with mid-term elections upcoming in less than a year, there's a good bet that there will be action by then, in fact, 4-6 months before the elections. So, June sounds like the right time for the Fed to boost 25 basis points, maybe even 50. It's also likely that the federal budgeting process will begin sounding more Republican, even though it will be dominated by Democrats.
So, where does that leave stocks? Little changed until then. The bull market remains intact, the carry trade goes on for a few more months, because, as the market is the ultimate discounting mechanism, the Fed moves will be baked in long before they actually occur. The rally should run nicely through January, and even into Spring, with a small respite during the summer and glorioski! another rally just in time for the election!
That's one way to play it. Ignore all the talk and chatter about the carry trade, weaker dollar, etc. and focus on good companies making money. Sooner or later, fundamentals will be your friend, and, by all indications, they're not too bad right now. A year from now, the crash of 2008 will be a fast-fading memory.
Dow 10,332.44, -93.87 (0.90%)
NASDAQ 2,156.82, -36.32 (1.66%)
S&P 500 1,094.90, -14.90 (1.34%)
NYSE Composite 7,117.64, -109.07 (1.51%)
Today's final numbers could have been much worse. The dollar actually weakened throughout the session, and stocks pared their losses after 10:30 am. The Dow was down 170 in the early going and gained much of that back by the closing bell. At the end, declining issues outnumbered advancing ones, 5210-1381, or nearly 4:1. It was one of the more lopsided days in recent memory, though hardly a rally-killer. It should be noted that options expire tomorrow, so much of the trading had to do with gains and losses on option trades. There were only 108 new highs, as compared to 67 new lows. The indication is that stocks are weak, though this measure cannot be trusted on a one-day move. We'll need more evidence that the bears have control before changing strategy, which remains bullish with a target of 10700 on the Dow by year end.
NYSE Volume 4,909,767,500
NASDAQ Volume 2,148,559,000
Commodities would be expected to take a hit, especially oil, which fell by $2.12, to $77.46, but gold actually rose $1.00, to $1,142.20. Silver gained 5 cents, to $18.46 per ounce. The precious metals markets have shown a recent trend away from the dollar trade. They can now be considered almost anti-currency, as they act as a hedge against all fiat (paper-based) currencies, which just happens to be everywhere in the world.
Other then the dollar movement, there was a little bit of news that might have moved markets so severely. Tim Geithner testified to the committee looking into financial reform, and any time Timmy opens his mouth in congress, it's usually a bad thing. A couple of members actually think he should resign. Not surprisingly, most of those requests for Mr.Geithner to step aside came from Republicans.
Early in the day, the entire world was reminded that bureaucracies seldom function perfectly, as air traffic across the nation was grounded due to an FAA "glitch."
Unemployment claims data was benign, and the week come to an end with no important economic data due out on Friday, and just 35 days until Christmas.
Leading Indicators for October were down slightly, while the Philadelphia Fed index was up. We have reached what is known as an inflection point.
After the bell, Dell (DELL) announced 3rd quarter results below expectations. The stock was trading down about a point, or 6.5% in after-hours activity. Gap Stores (GPS) reported a 25% improvement in profits, but the stock was being sold off after-hours, down about 1/2 a point, or 2.5%. Shares of the retailer, which includes GAP stores and Old Navy, have more thn doubled since their lows in March.
If that sounds odd to you, it should. The normal relationship of a strong dollar to strong stocks has been undercut in recent days as the new carry trade of borrowing cheap dollars and investing in risky equities has produced one of the more remarkable rallies of the past 100 years.
Sadly, it cannot continue. Eventually, days like today, when the dollar strengthens and stocks are obliterated as traders are forced to liquidate out of positions, will proliferate, killing the stock market rally. Either that, or, stocks continue to climb while we kill the dollar. Today's trading may have been illustrative in just how perverse and destructive the inverse relationship has become. One way or another, somebody's got to lose, when the truth is that a stronger dollar should encourage more investment in stocks and US companies, rather than the reverse.
There's a bit of illogic to this trade, so excuse me for thinking out loud here. If it's true that many of the hedge funds are already out of this market, then today's trade would not have occurred. There would have been honest bets on stocks, not liquidity-driven hedge-type activity. So, that argument is probably full of large holes.
Then there's the idea of trillions on the sidelines - some say as much as $3 trillion invested in money market funds, some more in bond funds and plenty in cash. Just because those people don't want to engage in the high risk of equities, it does not necessarily follow that they'll want to jump in when stocks are cheaper. Were that the case, they had ample opportunity back in the Winter of 2009-10. So, toss that rationale.
What makes sense is that the dollar will continue to weaken until the Fed signals that they're going to begin raising interest rates. Estimates of when that might happen range from June 2010 to some time in 2011. What's certain is that the Fed cannot keep rates at "near-zero" for much longer. Other nations have already begun raising interest rates - Australia and Norway to name two - while more are hinting at doing the same. When the Fed decides to begin raising rates the dollar will stop sliding against other currencies. It will actually begin gaining when our blessed federal government decides to start acting like adults and do something about the enormous deficits they are running.
Both of those events - Fed tightening and government responsibility - are inevitably tied to politics, and, with mid-term elections upcoming in less than a year, there's a good bet that there will be action by then, in fact, 4-6 months before the elections. So, June sounds like the right time for the Fed to boost 25 basis points, maybe even 50. It's also likely that the federal budgeting process will begin sounding more Republican, even though it will be dominated by Democrats.
So, where does that leave stocks? Little changed until then. The bull market remains intact, the carry trade goes on for a few more months, because, as the market is the ultimate discounting mechanism, the Fed moves will be baked in long before they actually occur. The rally should run nicely through January, and even into Spring, with a small respite during the summer and glorioski! another rally just in time for the election!
That's one way to play it. Ignore all the talk and chatter about the carry trade, weaker dollar, etc. and focus on good companies making money. Sooner or later, fundamentals will be your friend, and, by all indications, they're not too bad right now. A year from now, the crash of 2008 will be a fast-fading memory.
Dow 10,332.44, -93.87 (0.90%)
NASDAQ 2,156.82, -36.32 (1.66%)
S&P 500 1,094.90, -14.90 (1.34%)
NYSE Composite 7,117.64, -109.07 (1.51%)
Today's final numbers could have been much worse. The dollar actually weakened throughout the session, and stocks pared their losses after 10:30 am. The Dow was down 170 in the early going and gained much of that back by the closing bell. At the end, declining issues outnumbered advancing ones, 5210-1381, or nearly 4:1. It was one of the more lopsided days in recent memory, though hardly a rally-killer. It should be noted that options expire tomorrow, so much of the trading had to do with gains and losses on option trades. There were only 108 new highs, as compared to 67 new lows. The indication is that stocks are weak, though this measure cannot be trusted on a one-day move. We'll need more evidence that the bears have control before changing strategy, which remains bullish with a target of 10700 on the Dow by year end.
NYSE Volume 4,909,767,500
NASDAQ Volume 2,148,559,000
Commodities would be expected to take a hit, especially oil, which fell by $2.12, to $77.46, but gold actually rose $1.00, to $1,142.20. Silver gained 5 cents, to $18.46 per ounce. The precious metals markets have shown a recent trend away from the dollar trade. They can now be considered almost anti-currency, as they act as a hedge against all fiat (paper-based) currencies, which just happens to be everywhere in the world.
Other then the dollar movement, there was a little bit of news that might have moved markets so severely. Tim Geithner testified to the committee looking into financial reform, and any time Timmy opens his mouth in congress, it's usually a bad thing. A couple of members actually think he should resign. Not surprisingly, most of those requests for Mr.Geithner to step aside came from Republicans.
Early in the day, the entire world was reminded that bureaucracies seldom function perfectly, as air traffic across the nation was grounded due to an FAA "glitch."
Unemployment claims data was benign, and the week come to an end with no important economic data due out on Friday, and just 35 days until Christmas.
Leading Indicators for October were down slightly, while the Philadelphia Fed index was up. We have reached what is known as an inflection point.
After the bell, Dell (DELL) announced 3rd quarter results below expectations. The stock was trading down about a point, or 6.5% in after-hours activity. Gap Stores (GPS) reported a 25% improvement in profits, but the stock was being sold off after-hours, down about 1/2 a point, or 2.5%. Shares of the retailer, which includes GAP stores and Old Navy, have more thn doubled since their lows in March.
Wednesday, November 18, 2009
Some Relief for Small Business
After the near-collapse of the entire global banking system last fall (yes, it really was that close to the edge), many changes have occurred in the realm of finance, especially in the area of small business lines of credit. It's now tougher than ever for small businesses to get start-up loans, much less maintain adequate lines of credit with which to operate going concerns.
The big banks don't want to know about risky loans, since they almost went belly-up themselves just months ago because they took on more risk than they should have. Now, Citibank, JP Morgan Chase, Bank of America and Wells Fargo are still standing thanks to taxpayer-funded bailouts, but there are thousands of small businesses littered across the vast tapestry of the American financial landscape that are close to the edge or already insolvent due to the carnage from the economic tsunami.
Now that CIT, one of the large "factoring" lenders has fallen into bankruptcy, there is a need for more emergency loan lenders to handle the ongoing needs of American small business.
Many small business-people are looking forward to passage of the Business Emergency Loan Relief Act, recently introduced in the Senate by Ohio's Sherrod Brown, which would temporarily raise the SBA 7(a) loan size from $2 million to $5 million, the 504 loan size from $1.5 million to $4 million, and the ARC loan size from $35,000 to $50,000. The bill also temporarily allows customers to use the 504 loan guarantees to refinance existing business debt, which would help small businesses address cash flow issues.
The bill was introduced by the Ohio Senator in an effort to ease some of the financial pain currently plaguing American small business.
The big banks don't want to know about risky loans, since they almost went belly-up themselves just months ago because they took on more risk than they should have. Now, Citibank, JP Morgan Chase, Bank of America and Wells Fargo are still standing thanks to taxpayer-funded bailouts, but there are thousands of small businesses littered across the vast tapestry of the American financial landscape that are close to the edge or already insolvent due to the carnage from the economic tsunami.
Now that CIT, one of the large "factoring" lenders has fallen into bankruptcy, there is a need for more emergency loan lenders to handle the ongoing needs of American small business.
Many small business-people are looking forward to passage of the Business Emergency Loan Relief Act, recently introduced in the Senate by Ohio's Sherrod Brown, which would temporarily raise the SBA 7(a) loan size from $2 million to $5 million, the 504 loan size from $1.5 million to $4 million, and the ARC loan size from $35,000 to $50,000. The bill also temporarily allows customers to use the 504 loan guarantees to refinance existing business debt, which would help small businesses address cash flow issues.
The bill was introduced by the Ohio Senator in an effort to ease some of the financial pain currently plaguing American small business.
Markets Lower, But Not By Much
Once again, US equity markets showed incredible resiliency, closing with tiny losses in the face of dour economic news and a sputtering trading regimen.
With options expiration just two days away, stocks skidded close to support levels, but by the end of the day had recovered most of the lost ground and finished with modest losses.
The biggest news of the day was threefold: Warren Buffett and Goldman Sachs announced a $500 million initiative for lending to small businesses; American Express (AXP) Announced the purchase of AOL founder Ted Case's Revolution Money, a PayPal competitor; and October housing starts fell 10.6% from September and 30.6% from a year ago.
All of that news hit the street before the opening bell, the slack housing data contributing to an overall slide right out of the gate.
Dow 10,426.31, -11.11 (0.11%)
NASDAQ 2,193.14, -10.64 (0.48%)
S&P 500 1,109.80, -0.52 (0.05%)
NYSE Composite 7,226.71, -7.35 (0.10%)
By the end of the day, however, stocks stood just below where they had at the end of Monday. For the full session, declining issues beat advancers, 3716-2726. New highs beat new lows, 324-67. Volume was, as has been the case since Spring, weak.
NYSE Volume 4,902,849,500
NASDAQ Volume 1,951,870,250
Oil finished higher, up 44 cents, at $79.58. Gold rose $1.90, to $1,141.30, but was up over $1,151.00, a new record. Silver continued to ascend, up just 3 cents, to $18.42.
Trades will continue to be pushed along by the usual suspects: the US Dollar and options expiration, though the latter may not have much impact after mid-day tomorrow.
With options expiration just two days away, stocks skidded close to support levels, but by the end of the day had recovered most of the lost ground and finished with modest losses.
The biggest news of the day was threefold: Warren Buffett and Goldman Sachs announced a $500 million initiative for lending to small businesses; American Express (AXP) Announced the purchase of AOL founder Ted Case's Revolution Money, a PayPal competitor; and October housing starts fell 10.6% from September and 30.6% from a year ago.
All of that news hit the street before the opening bell, the slack housing data contributing to an overall slide right out of the gate.
Dow 10,426.31, -11.11 (0.11%)
NASDAQ 2,193.14, -10.64 (0.48%)
S&P 500 1,109.80, -0.52 (0.05%)
NYSE Composite 7,226.71, -7.35 (0.10%)
By the end of the day, however, stocks stood just below where they had at the end of Monday. For the full session, declining issues beat advancers, 3716-2726. New highs beat new lows, 324-67. Volume was, as has been the case since Spring, weak.
NYSE Volume 4,902,849,500
NASDAQ Volume 1,951,870,250
Oil finished higher, up 44 cents, at $79.58. Gold rose $1.90, to $1,141.30, but was up over $1,151.00, a new record. Silver continued to ascend, up just 3 cents, to $18.42.
Trades will continue to be pushed along by the usual suspects: the US Dollar and options expiration, though the latter may not have much impact after mid-day tomorrow.
Tuesday, November 17, 2009
Logic-Defying Market Clambers Over Dollar, Data, Higher
The dollar was stronger against the Euro and the Pound.
Didn't matter.
Capacity Utilization was flat. Retailers warned of softer holiday season. The Fed was out jawboning about the dollar, bubbles and overpriced markets. More stocks closed lower than higher.
Didn't matter.
Industrial production was lower than expected and the PPI was also up less than anticipated.
None of this mattered to a market that only knows one direction presently. Up. Up. And up some more.
All of the major indices, except the NYSE Composite, closed at new 13-month highs on the day. The moves were made despite Home Depot (HD) and retailer Target (TGT) reporting earnings, warning about a slow holiday season and finishing lower. It's a market right out of a bad horror flick, that refuses to obey, refuses to die. It's the Energizer Bunny in disguise. It keeps going and going and going. There's hardly any reason to report on it, except to tell that it's up once again, or to analyze it, because any technical or fundamental analysis will be proven wrong within a session of two. It's not that one should be upset that stocks are going up, rather, to the contrary. It's just that one would like to see some rationale for the movement.
Dow 10,437.42, +30.46 (0.29%)
NASDAQ 2,203.78, +5.93 (0.27%)
S&P 500 1,110.31, +1.01 (0.09%)
NYSE Composite 7,234.06, -3.04 (0.04%)
Losers beat winners, 3502-2921. New highs were ahead of new lows, 378-72. There was no volume of which to speak. It was the weakest day, volume-wise, in the last two weeks.
NYSE Volume 4,423,809,500
NASDAQ Volume 1,837,747,125
Commodities, despite the dollar stronger against most foreign currencies, mostly finished with gains. Oil closed up 24 cents, to $79.14. Gold finished unchanged at $1,139.20, while silver slid 3 cents to $18.37.
Most of the trade today, as it likely will tomorrow, had more to do with options expiration than anything else. Anything that could have moved the market would have moved it lower. Obviously, nobody was paying any attention to the normal forces at play. This market is about as tricky to play as any ever seen. Many, who have made their money in the earlier run-up, are already out, which may be the best idea of all.
Didn't matter.
Capacity Utilization was flat. Retailers warned of softer holiday season. The Fed was out jawboning about the dollar, bubbles and overpriced markets. More stocks closed lower than higher.
Didn't matter.
Industrial production was lower than expected and the PPI was also up less than anticipated.
None of this mattered to a market that only knows one direction presently. Up. Up. And up some more.
All of the major indices, except the NYSE Composite, closed at new 13-month highs on the day. The moves were made despite Home Depot (HD) and retailer Target (TGT) reporting earnings, warning about a slow holiday season and finishing lower. It's a market right out of a bad horror flick, that refuses to obey, refuses to die. It's the Energizer Bunny in disguise. It keeps going and going and going. There's hardly any reason to report on it, except to tell that it's up once again, or to analyze it, because any technical or fundamental analysis will be proven wrong within a session of two. It's not that one should be upset that stocks are going up, rather, to the contrary. It's just that one would like to see some rationale for the movement.
Dow 10,437.42, +30.46 (0.29%)
NASDAQ 2,203.78, +5.93 (0.27%)
S&P 500 1,110.31, +1.01 (0.09%)
NYSE Composite 7,234.06, -3.04 (0.04%)
Losers beat winners, 3502-2921. New highs were ahead of new lows, 378-72. There was no volume of which to speak. It was the weakest day, volume-wise, in the last two weeks.
NYSE Volume 4,423,809,500
NASDAQ Volume 1,837,747,125
Commodities, despite the dollar stronger against most foreign currencies, mostly finished with gains. Oil closed up 24 cents, to $79.14. Gold finished unchanged at $1,139.20, while silver slid 3 cents to $18.37.
Most of the trade today, as it likely will tomorrow, had more to do with options expiration than anything else. Anything that could have moved the market would have moved it lower. Obviously, nobody was paying any attention to the normal forces at play. This market is about as tricky to play as any ever seen. Many, who have made their money in the earlier run-up, are already out, which may be the best idea of all.
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