Archive - Jan 2011

Just trying to make a buck...

Knight Capital's take on the FOMC minutes: "The Fed’s minutes from the December 14, 2010 meeting seem to echo our own concerns (see our “Three Threats, One Risk” report published October 6, 2010). Though noting evidence of growth and an improving “tone” to the labor market, the Fed did not feel that the apparently improving economy warranted any change in QE. The Fed noted that the housing market and debt problems in Europe could curb growth – further noting the impact on LIBOR funding. The rise in unemployment was troubling to policy makers as they noted that the rise came with a backdrop of depressed labor force participation and employment-population ratios. Further stresses come from the depressed housing market, employers' continued reluctance to add to payrolls, ongoing efforts by some households and businesses to delever, and precarious state and local municipalities’ balance sheets. Deflation is also not totally off of the Fed’s radar either (recall it was a buzzword just a few months ago), as some participants noted that with substantial resource slack persisting, underlying inflation might fall further below the levels that the Fed desires."

Most of the “risk on” trade today hinges on the Euro holding up. If the Euro collapses, then stocks and commodities will follow suit (a weak Euro pushes the US Dollar higher).

With that in mind, the weekly Euro chart shows the currency is very close to making a breakdown below its trendline:

No reaction on the FOMC minutes, as expected, which basically say that despite the "economic improvement" the Fed does not have confidence in the economy to remove QE. Also, QE is supposedly successful because rates went up, even though the whole purpose of QE is to get rates down. Total idiocy. As for Goldman's take: "Perhaps the best single sentence in this document is the one that immediately precedes the vote on the directive to the New York Fed for its intermeeting operations: "With respect to the statement to be release following the meeting, members agreed that only small changes were necessary to reflect the modest improvement in the near-term economic outlook." In this regard, we remember expecting the committee to upgrade its view only modestly and finding that the upgrade was, if anything, a bit more cautious than we anticipated."

In a previous article ("Something's Happening") I noted positive trends emerging. I'm still not saying we are on the road to recovery (actually we are on the road to stagflation), but things are getting warmer. "Something" is still happening. Pay attention.

Laszlo Birinyi, the Hungarian famous for discovering such curious novel uses for a ruler such as i.e., a stock price forecast device, has just officially reached over into the twilight zone and pulled out his forecast for the S&P for 2013, September 4^th to be precise, not 3^rd not 5^th, and it is, hold on to your hats, 2,854, or well over a double in just over 3 years. Bloomberg clarifies this particular prediction which is either pure idiocy or even purer brilliance: "While this ‘forecast’ is fraught with potential pitfalls, unseen events
and caveats,” investors should be optimistic about the U.S. stock
market, given its history, Birinyi wrote." While not sure what particular history Birinyi is referring to, it most likely is not the 50%+ plunge in the market in a year and a half, when it became all too clear for a few brief days, that the entire global financial system is one big ponzi.

From Russ Certo of Gleacher: "Why today would gold reverse by $40? And silver down 4$ and the entire complex go for sale. Why is the Swiss Franc off near 2% in a loss of quality flight? Why are all things risk correlated? Is it that UK surprised with largest manufacturing increase since early 90s and we, therefore, don’t need simulative central bank policies? Is it a significant risk reduction in front of the FOMC minutes at 2pm today? I dunno."

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 04/01/11

The biggest reason to hate FaceBook (WARNING: Dispose of all liquid refreshments)

GM just reported its December sales numbers to a reaction that led all women in Phil LeBeau's presence to order what he is having. The uberbullish take home message from the report: "General Motors dealers reported 223,932 total sales in December, a
16-percent increase from a year ago for the company’s four brands. The
gain was driven by solid retail sales which were 27 percent higher than a
strong December a year ago. For the calendar year, total sales for GM’s
four brands increased 21 percent to 2,202,927, while retail sales rose
16 percent for the year. GM’s four brands sold 118,435 more vehicles
this year than the company did with eight brands in 2009, and will gain
total and retail market share for the year." And on the surface this is pretty: after all the comparison is between a number of 193,824 from a year ago, and 223,932 as of December. But shouldn't the comparison actually be between 385,000 and 511,000? These are the numbers that show what GM's dealer inventory was for the months of December 2009 and 2010. In other words, there was an increase of 30k in sales... accompanied by a 125k increase in "stuffed" vehicles held at dealers. Does anyone still have that AOL case study handy somewhere?

After a few hours ago we highlighted that on Friday the put to call ratio surged to a three month high, it was only natural, in this hollow sham of a market which is now entirely dominated by two or three traders, for us to get confirmation that not only did the Put to call ratio plunge on Monday but it did so with gusto: falling to a fresh three month low, an event which according to Sentiment Trader has never occurred before. Welcome to market schizophrenia you can believe in.

"The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better."

When we first heard news about the partial settlement between Fannie and Bank of America, we assumed, naturally, that the current Fannie General Counsel Tim Mayopoulos, and former spurned Bank of America General Counsel, would have been front and center in such discussions. After all he is the damn general counsel, who just happens to know all the dirt there is about Bank of America. We also assumed that any non-disparagement, and/or related trade secrets clauses would be obviously very much irrelevant. We were wrong. It appears that the man who more than anyone should have been able to put two and two together and actually derive some benefits to his bosses, the American taxpayers, and generate a better settlement.... decided to recuse himself from the negotiations! We wonder then just on what grounds this man, who it seems Ken Lewis may very well have had a justifiable reason for getting rid of, was awarded $3 million in compensation for doing nothing to protect taxpayer interests in America's most (openly) insolvent company.

After the equity-only put to call ratio for most of December had been at very suppressed levels for most of the month, it suddenly jumped rather notably on Friday, pushing to a level not seen in well over three months. Courtesy of Sentiment Trader we have some historical observations of what happens when the S&P trades within 1% of a 52 week high concurrently with the Put to Call ratio jumping to a multi-month high: for those who still care about technicals, here is the verdict: "there was only 3 other days when the S&P 500 was trading within 1% of a 52-week high and the put/call ratio surged to at least a 3-month high. Those dates were 2/24/05, 4/26/06 and 10/3/06. After the first two, the S&P jumped a little less than +2% over the next 7 days, then slumped -7% over the next 30 days. The two were remarkably similar. Not so the last instance, which also rose about +2% over the first 7 days...and then just kept right on going."

The annualized three-month rate of change gave an early warning sign went it went into negative territory in June 2006, while both the 10-city and 20-city only showed declining house prices in January of 2007. Equally, the three-month rate of change signaled a trend reversal in April, May and June of 2009, while the overall index did not turn positive until February 2010. Investors would have been wise to heed these signals – both on the way down and on the way up. As declining house prices were the trigger[4] for the biggest financial crisis since the Great Depression it is only a matter of time until financial markets react to the new realities of house prices: a double-dip.