Archive - Mar 2011

Today's market sell off was notable not only because it was the biggest single day percentage drop since November, but because it snapped the nearly unbreakable series of positive "first day of the month" returns. The biggest loser: the thousands of momo traders who go all in the last day of the month hoping to recreate the pattern. Alas, the pattern now longer exists, and today was the biggest outlier since June of 2010. That said, since the beginning of 2010, the bulk of the market's returns are still confined to the "first day" performance as nearly 15% of cumulative returns since 2010 are of that kind, and the rest is a meager 3%. It may be time for a major algo regime change.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 01/03/11

Even as gold closed at all time highs, and silver surged to a fresh 31 year closing high, the most important observation is that the market snapped the critical 7 month winning streak of major surges on the first day of the month (we will provide an update on this shortly). This means that all lemming momentum chasers are now blind deaf and mute, with no orientation in a suddenly very unfriendly stock market. In the meantime, all those who continue to believe that with oil over $100 the biggest winners will be gold and silver, are, for the time being correct. The attached charts confirm it.

Over the past several decades, the American economy has been slowly but surely merged into the emerging one world economic system.

It was just earlier this week that a bunch of irrelevant confidence trackers said that US consumer confidence had hit 3 year highs. Oddly enough, ground data not only does not confirm this data, but says it is merely more baseless propaganda. According to Gallup, which actually knows how to poll, "Americans have become much less confident in the U.S. economy over the
past two weeks, with Gallup's Economic Confidence Index falling from -18
to -30 during that span. The -18 Index score from two weeks ago was the
most positive Gallup had measured in the last three years." And as we suspected when we reported the latest confidence data "These results ... indicate the Thomson Reuters/University of Michigan Index of
Consumer Sentiment, released Friday but based mostly on interviewing
from early and mid-February, was essentially out of date when it was
released. The Index of Consumer Sentiment showed consumer confidence to
be the highest it has been since January 2008, similar to what Gallup
showed two weeks ago. But Gallup's latest weekly update suggests
consumer confidence has fallen back to where it was in early December." Luckily bad news no longer matters, because if it did Gallup's forecast would guarantee QE3,4, and so forth: "The short-term prospects for a turnaround in consumer confidence do not appear great, with gas prices likely to continue to rise, with state and federal governments facing increasingly difficult budget situations, and unemployment remaining high."

Are you listening, Pentagon?

Update: Canada has now sent a warship to Libya as well.

Here we go:

GATES SAYS 400 MARINES BEING SENT TO JOIN RELIEF EFFORT (as we predicted yesterday)
GATES SAYS WILL `PROVIDE PRESIDENT WITH FULL RANGE OF OPTIONS

And to those who think the good Colonel will leave his oil in the hands of the infidels, we suggest you short Brent now.

Just in time for silver to catch a breather, gold steps in, and hits a fresh all time high of $1,432.57. Alas since this price action is merely stragglers loading up as a semi-mute Cramer, who suddenly has no 100x fwd P/E momentum stocks to pitch, goes back to pushing gold. As such the spike is likely rather temporary (for now).

Guggenheim's Scott Minerd has released a somewhat controversial piece looking at several steps forward in case the MENA crisis escalates to the point where dominoes start toppling each other. His conclusion: "After all these dominoes fall, global investors will likely find themselves in a world that looks like this: the Middle East is highly unstable, emerging market economies are slowing, and the crisis in Europe has been exasperated by shrinking exports, leading to a decline in the value of the euro. Against this landscape, the U.S. economy and dollar-denominated financial assets will look increasingly attractive on a relative value basis." Needless to say we disagree with this rather simplistic assessment, or rather, with a very large caveat: in nominal terms, Minerd may well be right, but the resultant surge in oil to well over $200 (should his thesis pan out) will cripple the US economy, force the Treasury to turn on the afterburner on debt issuance, and ultimately result in the biggest bout of monetization ever, resulting in the death of the US dollar (and thus, the resurgence of the gold standard). That said, it is a good piece, if one takes the conclusion with a big piece of salt. In our opinion, the only clear winners from the domino collapse will be oil as we have claimed since early January... and the PM complex of course.

While GM has traded below its IPO price in the past, so far the most coddled IPO of 2010 has yet to close below its IPO price of $33. Indeed, while the special services of HFT powerhouse GETCO have been instrumental in allowing the car maker to continue diverging with its true price, courtesy of massive bouts of momentum buying every time the stock price appears to break with government regulation, today may be the day when gravity and reality finally wins. And considering that GM just released its February sales data, which confirmed that the company continues to engage in dealer inventory stuffing, with 517,000 cars held in dealer inventory, compared to 510,000 in January, and 420,000 a year ago, (and the second largest amount in history after the 536,000 in November), the veneer off the world's most overvalued carmaker is finally starting to come off.

"Dear Lord Blankfein, in the name of Martha Stewart and Bishop Ivan of Boesky, please spare us the self adulatory bull shit about how the Men of G are some kind of genetically superior pedigree of low life Wall Street scum bag!"

High speed in reverse. Only one possible outcome.

Which is as ridiculous as Gaddafi trying to blame the Libyan protests on Osama Bin Laden, or al-Maliki blaming Al Qaeda for the Iraqi protests ...

Reuters presents an interesting chart, which shows the historical correlation between oil (both Brent and Crude) and equities. After we had seen a positive correlation, either weak or strong, between the commodity and the risk asset for two and a half years, the correlation has finally flipped and gone negative. And while many debate whether or not the WTI is relevant at all any more with all the factors that have caused a record spread between it and Brent, one thing is obvious: the last time WTI to Stocks hit a correlation of -0.5 is just after the market peaked in late 2007, early 2008, as the market had started its decline which culminated with the global sell off of everything not nailed down, bringing the S&P to 666. The correlation between the two assets is again -0.5. If Brent confirms the WTI correlation, it may be time to run.

... for those who are lucky enough not to drive a gas consuming vehicle. Alas, with well over 254 million registered passenger vehicles in the US as of 2007, that's probably not that many. As for CNBC's claim that food inflation is somehow "taking care of itself" due to demand destruction, they may well be all too right: a few more revolutions, and resulting "disappearances" of protesters, and there will be far less organic demand for such a headline CPI nuisance as food.