When markets get roiled like they did on Monday, especially following four weeks in January of steady declines, the usual reaction is for investors to nibble at the edges, like rats who have been spooked by sprung traps on their coveted cheese.
The only data drop worth noting on the day was Factory Orders, which fell 1.5% in December, the most since July. Inventories of manufactured durable goods reached an all-time high for the series in December, to $387.9 billion, marking the fastest year-over-year inventory build in 6 months.
That same inventory build has been responsible in part for much of the two past GDP figures, from the third and fourth quarters of 2013, and, unless consumers come out of hiding soon, those inventories are going to sit and eventually be marked down, further stifling the Fed's efforts to re-inflate the economy, which continues to stall out at a moribund inflation rate well below two percent.
While lower costs for manufactured and consumer goods comes as pleasant news for individuals and small business, it works against the Fed's perverse mandate of "stable prices," which, in actuality, is defined in Fedspeak as "stably-increasing prices at a rate of at least two percent and preferably higher, stealing purchasing power from people, everywhere, all the time, while debasing the currency."
Since 2008, the Fed's playbook has been redesigned to include trick plays like ZIRP, QE, reverse-repos, re-hypothecation and other arcane financing stylings, most of which have had limited success. Now, with their implicit desire to end QE this year, the fruits of their laborious injections of trillions of dollars into the global economy are proving impotent as first, emerging markets are crushed, soon to be followed by developed markets, already occurring in Japan, where the Nikkei fell by more than 600 points overnight, and is clearly into "correction" territory.
While today's pause offered some relief for the bulls, the bears seem to be still in charge. Advances in early trading on the major indices were pared back throughout the session, the closing prices barely denting the declines of just Monday, to say nothing of the drops from January.
Everybody is going to get something of a clue Wednesday morning, when ADP releases its January private jobs report, a precursor to Friday's non-farm payroll data for January. Expectations are high that the US created 185,000 jobs in January, which would be a masterstroke of statistical wizardry, after the December reading of 74,000 jobs, sure to be revised higher.
Unless this January was both a statistical marvel and a reality-defying month in which auto sales and retail sales were well below estimates and blamed on the weather, the take-away is that while people were discouraged to brave the elements to shop, the very same weather encouraged job creation and the seeking of employment. The math does not match the reality. The truth is probable that while the weather was poor in some areas of the country, it was fine elsewhere, so the localized Northeast mindset likely has everything calculated improperly.
Whenever weather is blamed for anything - unless it's a localized event like a hurricane, flood or fires - one can be nearly certain the assumption is at least partially false, as will be proven in this case. Therefore, if Friday's jobs report blows the doors off estimates, one can assume the economy, based on auto and retail sales, is much weaker than propagandized, and that the BLS modeling, their birth/death assumptions and general massaging of data is flawed and should be disregarded.
Of course, a good-feeling jobs report will boost stocks, just as a continuation of the trend from December will send them even lower. Along with the weather as a culprit, other terms being bandied about include "correction" (a 10% decline off recent highs) and "bottom" (where stocks stop declining). Most of the analysts are saying the recent action is expected, following the massive gains of 2013, but that it is also temporary and investors should be looking at this as a buying opportunity.
Others have differing opinions, believing the US and global economy are contracting instead of expanding, that inflation is nowhere to be found and all of those corporate stock buybacks from the past three to four years are going to be painful to unwind. With corporations buying back their own stock at high prices, reducing the flow while increasing the price, what happens when they want to sell back into the market, at lower prices? The internal damage done to balance sheets will be dramatic and will only accelerate any downward pressure.
That's what investors have to look forward to in coming months, unless some economic miracle occurs. And, as we all are well aware, miracles don't usually just come along as needed.
Particularly telling, considering today's advance, was the new high-new low metric, which heavily favored new lows, indicating that today's advance was not broad-based nor technically supported. Additionally, late in the day, S&P downgraded Puerto Rico's debt to junk status, a move that was widely expected, but still a huge negative.
A disturbing trend is the slight rise in commodity prices. Corn, soybeans, wheat, crude oil and natural gas have been bid up recently, as money, needing a safe place to rest, may find a home in such staples, artificially raising prices, though the gains may (and probably should) prove to be arbitrary and temporary, a certain sign of naked speculation.
DOW 15,445.24, +72.44 (+0.47%)
NASDAQ 4,031.52, +34.56 (+0.86%)
S&P 1,755.20, +13.31 (+0.76%)
10-Yr Note 101.05, -0.10 (-0.10%) Yield: 2.63%
NASDAQ Volume 2.00 Bil
NYSE Volume 4.05 Bil
Combined NYSE & NASDAQ Advance - Decline: 3738-1977
Combined NYSE & NASDAQ New highs - New lows: 49-111
WTI crude oil: 97.19, +0.76
Gold: 1,251.20, -8.70
Silver: 19.42, +0.013
Corn: 441.75, +6.00
Tuesday, February 4, 2014
Monday, February 3, 2014
Wall Street Has a Problem, So Everybody Will Suffer; Stocks Smashed on Yellen's 1st Day
Fed Chairwoman, Janet Yellen, is just about to head home from her first day as head of the US Federal Reserve System. Judging by what happened on Wall Street, she's probably not going to cook herself a wholesome meal, but rather will order out, Chinese the most likely choice.
Stocks went absolutely South on the first day of February, largely in response to the Fed's decision to continue their asset purchase tapering, but moreso on US and China economic weakness.
China's PMI for January edged down to 50.5, the lowest level in six months, not exactly the kind of news Ms. Yellen was seeking. Making matters worse for the new Fed head, US ISM fell from 56.5 to 51.3, sending stocks, already down on the session, into a tailspin after their release at 10:00 am ET.
The lethal combination of the Fed cutting back on bond purchases, in the face of weakening data from the world's two largest economies, set the stage for a massive selloff on Wall Street and a flight to the safety of US treasury bonds, which closed at their lowest yield level - on the benchmark 10-year note - in three months.
The carnage on Wall Street was not isolated to just today, however. Stocks have been performing poorly all year, and the level of fear is perceptibly rising, with the Dow, NASDAQ and S&P 500 all closing down more than 2%, after the Nikkei fell 295 points and officially into a correction, down 10% off the recent highs.
The losses on Wall Street were monumental. For the Dow, it was the worst start to a month since 1982; for the NASDAQ, the losses were the worst since the inception of the index (1972).
Auto sales were down for January, with weather blamed for sluggish sales. Bond funds saw 20-30 time normal volume of inflows. The VIX has gone from the mid-12s to over 21 in a month, a 70%-plus rise in risk perception. Not only were stocks down, but volume was large, and has been throughout the slide which began in January.
The reaction in bond markets - sending the 10-year down to a yield of 2.58% - was perfectly rational. As risk assets (stocks) deteriorate, safety is sought, and there's nothing safer than US treasuries, or, maybe, German bunds, also lower during the past month and today.
Looking forward, Ms. Yellen should have expected this, or worse. After all, history tells us that all new Fed chairs inherit crises. as did Volker, Greenspan and Bernanke before her. Surely, the shared wisdom of decades of Federal Reserve actions will guide Ms. Yellen to a logical solution, stopping the slide in stocks while keeping the US economy growing.
Or will it?
Yellen is trapped. QE tapering is already the de facto standard policy. To reverse it would be to admit defeat, and possibly undermine any confidence left in the institution of the Federal Reserve, which, admittedly, isn't much. The true solution is for the Fed to stand back, watch the markets deteriorate, witness the destruction of the US and global economy over the near term and hope that people, individuals and businesses, will have enough of their wits remaining to muddle through a few years of truly hard times.
The Fed has no choice. Interest rates are already at zero and QE has had limited effect. It's time for the Fed to turn its back on the economy and the markets and let chips fall where they may. Any other action will only result in more asset dislocations, of which there are already too many.
For those of us who are not heavily invested in stocks (that leaves out anybody depending upon a pension, either now or in the future), SHORT AT WILL. This downward thrust will eventually manifest itself into a correction (the Dow is less than 500 points from it) and, by May or June or July, at the latest, a fully-blown bear market.
Bull markets do not last forever, and this current bull, which began in March, 2009, has reached its end. If proof is needed, check the highs on the indices from December and see how long it takes to get back to those levels. A reasonable guess, at this juncture, would be seven to ten years, maybe as long as 20.
The globalization experiment, as it always does, is failing. Economies must begin to fend for themselves and become more localized. Faith in Wall Street, which took a severe blow in 2008-09, will lose all credibility in coming months. Already, there are hordes of individuals who do not trust the wizards of Wall Street, as it was in the 1930s, during the Great Depression.
Wall Street will not respond well. Stocks will fall. Bond yields and mortgages will be even lower than in recent years. While those who have bought into the system - government employees, pensioners of many stripes, plain idiots and "investors" - will suffer, the prudent, the goldbugs, silverbugs and savers will eventually be rewarded for their patience and their frugality.
Put one's faith not in the data and derivatives of Wall Street, but in the strength of individuals, work ethic and survivability. That's a trade which has stood the test of time.
Note to Dan K (who may or may not be interested), and Adam Smith theorists, corn was up 0.40% today; silver gained 1.51%. Deflation.
DOW 15,372.80, -326.05 (-2.08%)
NASDAQ 3,996.96, -106.92 (-2.61%)
S&P 1,741.89, -40.70 (-2.28%)
10-Yr Note 101.48, +1.21 (+1.21%) Yield: 2.58%
NASDAQ Volume 2.41 Bil
NYSE Volume 4.72 Bil
Combined NYSE & NASDAQ Advance - Decline: 839-4976 (extreme)
Combined NYSE & NASDAQ New highs - New lows: 83-197 (trending)
WTI crude oil: 96.43, -1.06
Gold: 1,259.90, +20.10
Silver: 19.41, +0.289
Corn: 435.75, +1.75
Stocks went absolutely South on the first day of February, largely in response to the Fed's decision to continue their asset purchase tapering, but moreso on US and China economic weakness.
China's PMI for January edged down to 50.5, the lowest level in six months, not exactly the kind of news Ms. Yellen was seeking. Making matters worse for the new Fed head, US ISM fell from 56.5 to 51.3, sending stocks, already down on the session, into a tailspin after their release at 10:00 am ET.
The lethal combination of the Fed cutting back on bond purchases, in the face of weakening data from the world's two largest economies, set the stage for a massive selloff on Wall Street and a flight to the safety of US treasury bonds, which closed at their lowest yield level - on the benchmark 10-year note - in three months.
The carnage on Wall Street was not isolated to just today, however. Stocks have been performing poorly all year, and the level of fear is perceptibly rising, with the Dow, NASDAQ and S&P 500 all closing down more than 2%, after the Nikkei fell 295 points and officially into a correction, down 10% off the recent highs.
The losses on Wall Street were monumental. For the Dow, it was the worst start to a month since 1982; for the NASDAQ, the losses were the worst since the inception of the index (1972).
Auto sales were down for January, with weather blamed for sluggish sales. Bond funds saw 20-30 time normal volume of inflows. The VIX has gone from the mid-12s to over 21 in a month, a 70%-plus rise in risk perception. Not only were stocks down, but volume was large, and has been throughout the slide which began in January.
The reaction in bond markets - sending the 10-year down to a yield of 2.58% - was perfectly rational. As risk assets (stocks) deteriorate, safety is sought, and there's nothing safer than US treasuries, or, maybe, German bunds, also lower during the past month and today.
Looking forward, Ms. Yellen should have expected this, or worse. After all, history tells us that all new Fed chairs inherit crises. as did Volker, Greenspan and Bernanke before her. Surely, the shared wisdom of decades of Federal Reserve actions will guide Ms. Yellen to a logical solution, stopping the slide in stocks while keeping the US economy growing.
Or will it?
Yellen is trapped. QE tapering is already the de facto standard policy. To reverse it would be to admit defeat, and possibly undermine any confidence left in the institution of the Federal Reserve, which, admittedly, isn't much. The true solution is for the Fed to stand back, watch the markets deteriorate, witness the destruction of the US and global economy over the near term and hope that people, individuals and businesses, will have enough of their wits remaining to muddle through a few years of truly hard times.
The Fed has no choice. Interest rates are already at zero and QE has had limited effect. It's time for the Fed to turn its back on the economy and the markets and let chips fall where they may. Any other action will only result in more asset dislocations, of which there are already too many.
For those of us who are not heavily invested in stocks (that leaves out anybody depending upon a pension, either now or in the future), SHORT AT WILL. This downward thrust will eventually manifest itself into a correction (the Dow is less than 500 points from it) and, by May or June or July, at the latest, a fully-blown bear market.
Bull markets do not last forever, and this current bull, which began in March, 2009, has reached its end. If proof is needed, check the highs on the indices from December and see how long it takes to get back to those levels. A reasonable guess, at this juncture, would be seven to ten years, maybe as long as 20.
The globalization experiment, as it always does, is failing. Economies must begin to fend for themselves and become more localized. Faith in Wall Street, which took a severe blow in 2008-09, will lose all credibility in coming months. Already, there are hordes of individuals who do not trust the wizards of Wall Street, as it was in the 1930s, during the Great Depression.
Wall Street will not respond well. Stocks will fall. Bond yields and mortgages will be even lower than in recent years. While those who have bought into the system - government employees, pensioners of many stripes, plain idiots and "investors" - will suffer, the prudent, the goldbugs, silverbugs and savers will eventually be rewarded for their patience and their frugality.
Put one's faith not in the data and derivatives of Wall Street, but in the strength of individuals, work ethic and survivability. That's a trade which has stood the test of time.
Note to Dan K (who may or may not be interested), and Adam Smith theorists, corn was up 0.40% today; silver gained 1.51%. Deflation.
DOW 15,372.80, -326.05 (-2.08%)
NASDAQ 3,996.96, -106.92 (-2.61%)
S&P 1,741.89, -40.70 (-2.28%)
10-Yr Note 101.48, +1.21 (+1.21%) Yield: 2.58%
NASDAQ Volume 2.41 Bil
NYSE Volume 4.72 Bil
Combined NYSE & NASDAQ Advance - Decline: 839-4976 (extreme)
Combined NYSE & NASDAQ New highs - New lows: 83-197 (trending)
WTI crude oil: 96.43, -1.06
Gold: 1,259.90, +20.10
Silver: 19.41, +0.289
Corn: 435.75, +1.75
Friday, January 31, 2014
Stocks End January in Ugly Fashion with All Major Indices Down for the Month and Year
Whew!
Friday capped off an extremely volatile week in stocks and world economics, though astute investors and money managers should have known this kind of activity was coming all along, as soon as the Fed began reducing its bond purchases last month.
With January in the can, one might be obligated to kick it, for it was one of the worst months in some time, in fact, the January decline was the worst since February of 2009. It was also the first January decline for stocks since 2011, and that turned out to be a very rocky year, so caution is advised for those with a bullish bent. Fund flows from emerging market stock and bond funds were massive over the past two weeks, as were equity outflows in US-based funds.
What really troubled markets this morning, when the Dow fell by more than 220 points in early trading, were outflows of capital from emerging markets everywhere, from Russia, to Hungary, to Poland, South Africa, Turkey, Argentina, Indonesia, India, Brazil and China, and that's just a partial list.
Adding to the woes was an earnings warning from Wal-Mart (WMT), which is viewing the passage of the farm bill in the House of Representatives as very detrimental to their business, as it will strip out $8 billion in food stamps, the life-blood of the Wally World economy.
As the Fed is committed to slowing their bond purchases and eventually ending quantitative easing (QE) over the next six to eight months, it will be instructive to view the new chairmanship of Janet Yellen, who has inherited the legacy of Ben Bernanke's reckless money printing and zero-interest rate policies of the past five years. Yellen, who by some measures is even more dovish than the white-tailed Bernanke, will, as is usually the case with a new Fed head, have to deal with a crisis condition in her first days as chairwoman and beyond, and there's really no telling how she may react to financial upheaval in not only the emerging economies, but also the developed ones.
Looking forward to next week, markets will have to digest official China PMI, released later tonight, then work through central bank policy meetings in England, the EU, Australia, Poland and the Czeck Republic before dealing with the potentially-devastating January non-farm payroll report on US jobs, due prior to the bell on Friday, making the first week of February no less nerve-wracking than all of January.
Here's how the major averages ended the week:
Dow -180.26 (-1.14%)
S&P 500 -7.70 (-0.43%)
NASDAQ -24.29 (-0.59%)
...and the month:
Dow -877.81 (5.3%)
S&P 500 -65.77 (-3.6%)
NASDAQ -72.71 (-1.7%)
It's not pretty, and, as expressed through post after post on Money Daily this month, it's almost certain to get worse, as huge imbalances turn into ugly dislocations of capital in every nook and cranny of the finance. The Fed, in its infinite wisdom, has gone too far since 2009 in trying to fix things that were broken by covering them up with wild slugs of capital and debt. Now, it is time to pay the piper, so to speak.
View the video below for Jim Grant's explanation of how the Fed distorts markets. His simple explanations provide deep insight for anyone who believe Keynesian economics has met its match in Ben Bernanke and the current crop of central bank "experimenters."
While this short clip is indeed concise and to the point, perhaps the most eloquent statement made on live TV by Mr. Grant was when he chided the erstwhile Steve Liesman with this pithy piece of pragmatism: "The FED can change what things look like, but, the FED can never change what things are." Our hats are permanently tipped to Mr. Grant. And with that, enjoy the weekend and the Super Bowl. The world may look the same come Monday, but, if one could see through eyes unclouded by hubris and propaganda, what a wonderful world it might be. DOW 15,698.85, -149.76 (-0.94%) NASDAQ 4,103.88, -19.25 (-0.47%) S&P 1,782.59, -11.60 (-0.65%) 10-Yr Note 100.86 +0.71 (+0.71%) Yield: 2.66 NASDAQ Volume 2.09 Bil NYSE Volume 4.05 Bil Combined NYSE & NASDAQ Advance - Decline: 1941-3780 Combined NYSE & NASDAQ New highs - New lows: 129-128 WTI crude oil: 97.49, -0.74 Gold: 1,240.10, -2.10 Silver: 19.12, -0.006 Corn: 435.00, +0.50
Friday capped off an extremely volatile week in stocks and world economics, though astute investors and money managers should have known this kind of activity was coming all along, as soon as the Fed began reducing its bond purchases last month.
With January in the can, one might be obligated to kick it, for it was one of the worst months in some time, in fact, the January decline was the worst since February of 2009. It was also the first January decline for stocks since 2011, and that turned out to be a very rocky year, so caution is advised for those with a bullish bent. Fund flows from emerging market stock and bond funds were massive over the past two weeks, as were equity outflows in US-based funds.
What really troubled markets this morning, when the Dow fell by more than 220 points in early trading, were outflows of capital from emerging markets everywhere, from Russia, to Hungary, to Poland, South Africa, Turkey, Argentina, Indonesia, India, Brazil and China, and that's just a partial list.
Adding to the woes was an earnings warning from Wal-Mart (WMT), which is viewing the passage of the farm bill in the House of Representatives as very detrimental to their business, as it will strip out $8 billion in food stamps, the life-blood of the Wally World economy.
As the Fed is committed to slowing their bond purchases and eventually ending quantitative easing (QE) over the next six to eight months, it will be instructive to view the new chairmanship of Janet Yellen, who has inherited the legacy of Ben Bernanke's reckless money printing and zero-interest rate policies of the past five years. Yellen, who by some measures is even more dovish than the white-tailed Bernanke, will, as is usually the case with a new Fed head, have to deal with a crisis condition in her first days as chairwoman and beyond, and there's really no telling how she may react to financial upheaval in not only the emerging economies, but also the developed ones.
Looking forward to next week, markets will have to digest official China PMI, released later tonight, then work through central bank policy meetings in England, the EU, Australia, Poland and the Czeck Republic before dealing with the potentially-devastating January non-farm payroll report on US jobs, due prior to the bell on Friday, making the first week of February no less nerve-wracking than all of January.
Here's how the major averages ended the week:
Dow -180.26 (-1.14%)
S&P 500 -7.70 (-0.43%)
NASDAQ -24.29 (-0.59%)
...and the month:
Dow -877.81 (5.3%)
S&P 500 -65.77 (-3.6%)
NASDAQ -72.71 (-1.7%)
It's not pretty, and, as expressed through post after post on Money Daily this month, it's almost certain to get worse, as huge imbalances turn into ugly dislocations of capital in every nook and cranny of the finance. The Fed, in its infinite wisdom, has gone too far since 2009 in trying to fix things that were broken by covering them up with wild slugs of capital and debt. Now, it is time to pay the piper, so to speak.
View the video below for Jim Grant's explanation of how the Fed distorts markets. His simple explanations provide deep insight for anyone who believe Keynesian economics has met its match in Ben Bernanke and the current crop of central bank "experimenters."
While this short clip is indeed concise and to the point, perhaps the most eloquent statement made on live TV by Mr. Grant was when he chided the erstwhile Steve Liesman with this pithy piece of pragmatism: "The FED can change what things look like, but, the FED can never change what things are." Our hats are permanently tipped to Mr. Grant. And with that, enjoy the weekend and the Super Bowl. The world may look the same come Monday, but, if one could see through eyes unclouded by hubris and propaganda, what a wonderful world it might be. DOW 15,698.85, -149.76 (-0.94%) NASDAQ 4,103.88, -19.25 (-0.47%) S&P 1,782.59, -11.60 (-0.65%) 10-Yr Note 100.86 +0.71 (+0.71%) Yield: 2.66 NASDAQ Volume 2.09 Bil NYSE Volume 4.05 Bil Combined NYSE & NASDAQ Advance - Decline: 1941-3780 Combined NYSE & NASDAQ New highs - New lows: 129-128 WTI crude oil: 97.49, -0.74 Gold: 1,240.10, -2.10 Silver: 19.12, -0.006 Corn: 435.00, +0.50
Thursday, January 30, 2014
3.2% Fourth Quarter GDP Sparks Relief Rally
Nothing really changed since Wednesday. The Fed is still going to purchase $65 billion in treasuries and mortgage-backed securities in February, $20 billion less than they did in December and in each month of 2013.
As a result, emerging markets are still struggling with reduced liquidity and runs on their various currencies.
We learned, prior to the opening bell, that fourth quarter GDP increased by 3.2%, slightly less than expected, and that 19,000 more people signed up for unemployment benefits last week, pushing the total to 348,000, the highest in about a month.
The unemployment number was widely disregarded and blamed - like everything else these days - on the weather, as the market saw plenty of alpha in a buy-the-dip mentality in what has been a down January and a choppy week of scary trading.
How the markets recover the losses incurred over the past three weeks is the big question, especially with the Fed stomping on the QE brakes. Earnings season has been nothing to get excited about, especially when, after the bell, Google and Amazon reported some very mixed results.
Google (GOOG) missed on the bottom line but beat on revenues, posting profits of just $12.01 per share on expectations of $12.26,reporting actual sales of $16.86 billion on forecasts for $16.75 billion. Shares of the giant search and technology company. Despite the miss, shares were traing about four percent higher in the after hours.
Amazon (AMZN) reported earnings of 51 cents per share, short of estimates of 69 cents, a big swing and a miss. Revenues were just short of estimates - up 20% from a year ago - at $25.59 billion when analysts were seeking $26.08 billion. Shares of the shopping megalith were down between four and eight percent in after-hours trading.
With January concluding tomorrow, it's a slam-dunk that the month will end lower, setting expectations for the full year back to "reasonable" levels. The current churn is that the "January Barometer" is not all that reliable for predicting full-year results. Of course, were stocks higher at this juncture, the barometer would be hailed as the most accurate of all investing tools and stock jockeys would be adjusting their year-end estimates towards the moon.
And, with stocks juiced, straight off the opening bell, what better time could there have been to slam gold and silver lower, as they were, unjustifiably. Still, from the perspective of gold and silver holders and buyers, the precious metals, even with higher premiums everywhere, are considered bargains at current prices.
Such is the world in a contrived environment controlled by issuance of play money to the world's elite. Fundamentals being what they are, however, reality may make a comeback in the weeks and months ahead.
DOW 15,848.61, +109.82 (+0.70%)
NASDAQ 4,123.13, +71.69 (+1.77%)
S&P 1,794.19, +19.99 (+1.13%)
10-Yr Note 100.46, +0.27 (+0.27%) Yield: 2.70%
NASDAQ Volume 1.94 Bil
NYSE Volume 3.54 Bil
Combined NYSE & NASDAQ Advance - Decline: 4329-1390
Combined NYSE & NASDAQ New highs - New lows: 156-67
WTI crude oil: 98.23, +0.87
Gold: 1,242.20, -20.00
Silver: 19.13, -0.426
Corn: 434.00, +6/00
As a result, emerging markets are still struggling with reduced liquidity and runs on their various currencies.
We learned, prior to the opening bell, that fourth quarter GDP increased by 3.2%, slightly less than expected, and that 19,000 more people signed up for unemployment benefits last week, pushing the total to 348,000, the highest in about a month.
The unemployment number was widely disregarded and blamed - like everything else these days - on the weather, as the market saw plenty of alpha in a buy-the-dip mentality in what has been a down January and a choppy week of scary trading.
How the markets recover the losses incurred over the past three weeks is the big question, especially with the Fed stomping on the QE brakes. Earnings season has been nothing to get excited about, especially when, after the bell, Google and Amazon reported some very mixed results.
Google (GOOG) missed on the bottom line but beat on revenues, posting profits of just $12.01 per share on expectations of $12.26,reporting actual sales of $16.86 billion on forecasts for $16.75 billion. Shares of the giant search and technology company. Despite the miss, shares were traing about four percent higher in the after hours.
Amazon (AMZN) reported earnings of 51 cents per share, short of estimates of 69 cents, a big swing and a miss. Revenues were just short of estimates - up 20% from a year ago - at $25.59 billion when analysts were seeking $26.08 billion. Shares of the shopping megalith were down between four and eight percent in after-hours trading.
With January concluding tomorrow, it's a slam-dunk that the month will end lower, setting expectations for the full year back to "reasonable" levels. The current churn is that the "January Barometer" is not all that reliable for predicting full-year results. Of course, were stocks higher at this juncture, the barometer would be hailed as the most accurate of all investing tools and stock jockeys would be adjusting their year-end estimates towards the moon.
And, with stocks juiced, straight off the opening bell, what better time could there have been to slam gold and silver lower, as they were, unjustifiably. Still, from the perspective of gold and silver holders and buyers, the precious metals, even with higher premiums everywhere, are considered bargains at current prices.
Such is the world in a contrived environment controlled by issuance of play money to the world's elite. Fundamentals being what they are, however, reality may make a comeback in the weeks and months ahead.
DOW 15,848.61, +109.82 (+0.70%)
NASDAQ 4,123.13, +71.69 (+1.77%)
S&P 1,794.19, +19.99 (+1.13%)
10-Yr Note 100.46, +0.27 (+0.27%) Yield: 2.70%
NASDAQ Volume 1.94 Bil
NYSE Volume 3.54 Bil
Combined NYSE & NASDAQ Advance - Decline: 4329-1390
Combined NYSE & NASDAQ New highs - New lows: 156-67
WTI crude oil: 98.23, +0.87
Gold: 1,242.20, -20.00
Silver: 19.13, -0.426
Corn: 434.00, +6/00
Wednesday, January 29, 2014
Bernanke's Departure Marks the End of the Bull Market as Stocks Slump Again
There were so many moving parts to the economic and trading landscape since yesterday's close, it may be most instructive to review them in chronological order.
First, around 5:00 pm ET, the Turkish central bank raised overnight lending rates - along with all other key rates - from 7.75% to 12%. That's the overnight rate, the rate at which the central bank lends to member banks. Ouch! The move immediately sent US stock futures soaring, as though the global economy had been saved by this one clumsy, desperate stroke of policy.
At 9:00 pm ET, the impostor-in-chief, Barrack Obama, gave his fifth state of he union address, grossly misrepresenting the overall health and stability of the United States and glibly calling on American businesses to give employees a raise.
The euphoria spread to Asian markets, which were higher on the day, the Nikkei gaining more than 400 points on the session.
However, by the time the sun began to rise on Europe, the glad tidings had turned back to fear, as the Turkish Lira began to come under continued pressure from other currencies. Most European indices were trending lower, though marginally, with losses of under one percent on the majors.
By early morning in the US, the trend had completely reversed course, with stock futures deeply negative. At the open, the Dow Jones Industrials fell by roughly 120 points and held in that range until the 2:00 pm ET Fed policy announcement.
Widely expected to taper their bond purchases by another $10 billion per month, dropping the total to $65 billion, the Fed did exactly that, to the ultimate dismay of equity investors. Those who had made the correct call prior to the action continued pulling money out of stocks, rotating, as it seemed prudent, into bonds, which continued to fall in the aftermath of the Fed's announcement.
By the end of the session, stocks had put in severe losses once again, with the Dow leading the way lower. Bonds reacted by rallying sharply, the 10-year-note finishing at its lowest yield - 2.68% - in more than two months. In addition to bonds, the main beneficiary of the Fed's reckless monetary policy at this juncture were precious metals, as gold and silver rallied throughout the day.
What becomes of equities, sovereign currencies and the global economy as the Federal Reserve says good-bye to Ben Bernanke (this was his final FOMC meeting as Fed chairman) and hello to Janet Yellen, is now an open question, though with obvious clues.
If the Fed continues to taper its bond purchases by an additional $10 billion per month, they would be completely out of the market sometime around September, though it is unlikely that the Fed's path will be so resolute and straightforward. Already, it's apparent that stocks are going to suffer in the short term, while bonds enjoy a day or two in the sun. With returns on equities becoming more and more risky endeavors, bonds will appear as a safe have, forcing more investors to rush in, thus, sending yields lower.
While a crash in the equity market may not exactly be what the fed had in mind, it may be unavoidable, as there is no neat way to unwind their massive QE program which unfolded over the past five years and should come to an end. As reckless as was Bernanke's policy directives of QE and ZIRP, unwinding these programs is going to cause massive economic disruptions and further fuel a gathering global deflation trade. It only makes sense. If the Fed withdraws liquidity, economies will suffer. At least it's a plan that makes some sense, though nobody really wants to endure the pain that comes from such an unwinding. In the long run, it may be the only way back to something resembling normalcy.
The pain will be acute - and already has been so - in emerging markets, where most of the hot money had been headed during the Fed's money-printing spree. Look for developed nations to maintain an aura of stability, while the rest of the world, in places as diverse as South Africa, Turkey, Argentina, Brazil, Indonesia, Mexico, India and eventually, China, become somewhat ungled, economically-speaking.
With money fleeing these former hotbeds of investment, their currencies will devalue against the rest of the developed world, Japan, the US and Europe remaining as the centrist states and most stable currencies... for a while. The risk is contagion from the emerging markets into the developed, as the destruction of deflation engulfs the globe.
Bonds should fare well. An expectation of the US 10-year note below two percent would be rational. However, carry trades, such as a Euro-Yen or Dollar-Yen might lose much of their luster, the better plays to be short the emerging currencies.
Of course, with dislocations of capital everywhere, gold and silver should be afforded a top-shelf position, though their advance will, as always, be suppressed by the concerted efforts of the central banks. Still, in a devaluing environment, the ultimate price of the precious metals, as measured against various currencies, may indeed become a top choice for wealth preservation.
With the current path of the Fed set in place (for now, because they can, have, and will move the goal posts), it would be safe to conclude that the bull market in stocks has come to an abrupt end and money in 401k and other accounts of storage will become victims of a nasty, clawing bear that has no regard for the future, only a perception of the unfolding present, complete with companies that are presently overvalued, have limited earnings growth potential and have to be unwound.
Unless the major indices can find a way to turn the tide and rally past recent highs, the bull market, spurred on by vast wasted sums of money from the Federal Reserve and other sources, is over.
From a technical perspective, Wednesday's trade was an outright disaster. Declining issues led advancers by a 7:2 margin and new lows exceeded new highs for the third day in the last four.
DOW 15,738.79, -189.77 (-1.19%)
NASDAQ 4,051.43, -46.53 (-1.14%)
S&P 1,774.20, -18.30 (-1.02%)
10-Yr Note 100.26, +0.97 (+0.97%) Yield: 2.68%
NASDAQ Volume 2.05 Bil
NYSE Volume 3.93 Bil
Combined NYSE & NASDAQ Advance - Decline: 1289-4441
Combined NYSE & NASDAQ New highs - New lows: 66-128
WTI crude oil: 97.36, -0.05
Gold: 1,262.20, +11.40
Silver: 19.55, +0.049
Corn: 427.50, -4.50
First, around 5:00 pm ET, the Turkish central bank raised overnight lending rates - along with all other key rates - from 7.75% to 12%. That's the overnight rate, the rate at which the central bank lends to member banks. Ouch! The move immediately sent US stock futures soaring, as though the global economy had been saved by this one clumsy, desperate stroke of policy.
At 9:00 pm ET, the impostor-in-chief, Barrack Obama, gave his fifth state of he union address, grossly misrepresenting the overall health and stability of the United States and glibly calling on American businesses to give employees a raise.
The euphoria spread to Asian markets, which were higher on the day, the Nikkei gaining more than 400 points on the session.
However, by the time the sun began to rise on Europe, the glad tidings had turned back to fear, as the Turkish Lira began to come under continued pressure from other currencies. Most European indices were trending lower, though marginally, with losses of under one percent on the majors.
By early morning in the US, the trend had completely reversed course, with stock futures deeply negative. At the open, the Dow Jones Industrials fell by roughly 120 points and held in that range until the 2:00 pm ET Fed policy announcement.
Widely expected to taper their bond purchases by another $10 billion per month, dropping the total to $65 billion, the Fed did exactly that, to the ultimate dismay of equity investors. Those who had made the correct call prior to the action continued pulling money out of stocks, rotating, as it seemed prudent, into bonds, which continued to fall in the aftermath of the Fed's announcement.
By the end of the session, stocks had put in severe losses once again, with the Dow leading the way lower. Bonds reacted by rallying sharply, the 10-year-note finishing at its lowest yield - 2.68% - in more than two months. In addition to bonds, the main beneficiary of the Fed's reckless monetary policy at this juncture were precious metals, as gold and silver rallied throughout the day.
What becomes of equities, sovereign currencies and the global economy as the Federal Reserve says good-bye to Ben Bernanke (this was his final FOMC meeting as Fed chairman) and hello to Janet Yellen, is now an open question, though with obvious clues.
If the Fed continues to taper its bond purchases by an additional $10 billion per month, they would be completely out of the market sometime around September, though it is unlikely that the Fed's path will be so resolute and straightforward. Already, it's apparent that stocks are going to suffer in the short term, while bonds enjoy a day or two in the sun. With returns on equities becoming more and more risky endeavors, bonds will appear as a safe have, forcing more investors to rush in, thus, sending yields lower.
While a crash in the equity market may not exactly be what the fed had in mind, it may be unavoidable, as there is no neat way to unwind their massive QE program which unfolded over the past five years and should come to an end. As reckless as was Bernanke's policy directives of QE and ZIRP, unwinding these programs is going to cause massive economic disruptions and further fuel a gathering global deflation trade. It only makes sense. If the Fed withdraws liquidity, economies will suffer. At least it's a plan that makes some sense, though nobody really wants to endure the pain that comes from such an unwinding. In the long run, it may be the only way back to something resembling normalcy.
The pain will be acute - and already has been so - in emerging markets, where most of the hot money had been headed during the Fed's money-printing spree. Look for developed nations to maintain an aura of stability, while the rest of the world, in places as diverse as South Africa, Turkey, Argentina, Brazil, Indonesia, Mexico, India and eventually, China, become somewhat ungled, economically-speaking.
With money fleeing these former hotbeds of investment, their currencies will devalue against the rest of the developed world, Japan, the US and Europe remaining as the centrist states and most stable currencies... for a while. The risk is contagion from the emerging markets into the developed, as the destruction of deflation engulfs the globe.
Bonds should fare well. An expectation of the US 10-year note below two percent would be rational. However, carry trades, such as a Euro-Yen or Dollar-Yen might lose much of their luster, the better plays to be short the emerging currencies.
Of course, with dislocations of capital everywhere, gold and silver should be afforded a top-shelf position, though their advance will, as always, be suppressed by the concerted efforts of the central banks. Still, in a devaluing environment, the ultimate price of the precious metals, as measured against various currencies, may indeed become a top choice for wealth preservation.
With the current path of the Fed set in place (for now, because they can, have, and will move the goal posts), it would be safe to conclude that the bull market in stocks has come to an abrupt end and money in 401k and other accounts of storage will become victims of a nasty, clawing bear that has no regard for the future, only a perception of the unfolding present, complete with companies that are presently overvalued, have limited earnings growth potential and have to be unwound.
Unless the major indices can find a way to turn the tide and rally past recent highs, the bull market, spurred on by vast wasted sums of money from the Federal Reserve and other sources, is over.
From a technical perspective, Wednesday's trade was an outright disaster. Declining issues led advancers by a 7:2 margin and new lows exceeded new highs for the third day in the last four.
DOW 15,738.79, -189.77 (-1.19%)
NASDAQ 4,051.43, -46.53 (-1.14%)
S&P 1,774.20, -18.30 (-1.02%)
10-Yr Note 100.26, +0.97 (+0.97%) Yield: 2.68%
NASDAQ Volume 2.05 Bil
NYSE Volume 3.93 Bil
Combined NYSE & NASDAQ Advance - Decline: 1289-4441
Combined NYSE & NASDAQ New highs - New lows: 66-128
WTI crude oil: 97.36, -0.05
Gold: 1,262.20, +11.40
Silver: 19.55, +0.049
Corn: 427.50, -4.50
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