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Morning Musings From Art Cashin
Via UBS Financial Services
Final Hour Float Up In Front Of Payroll Data – Surprising strength in retail data and a couple of analyst upgrades helped the stock market fend off currency influences.
The early session was somewhat uncertain. Stocks opened better on a drop in Initial Claims and that retail strength. At
10:00, a surprise drop in pending home sales drove the bids off the floor.
The selloff was brief but sharp. By about 10:40, the S&P had plunged from 1122 to 1116. That number corresponded to Wednesday’s afternoon lows which provided an excuse to circle the wagons.
Prices came back, regaining about half the area lost in the selloff.
For the next four hours, stocks churned sideways in a rather narrow band, warily watching the dollar and the Euro.
About 3:15, stocks began to tick slowly, but steadily higher.
The hypothesis was that the “snowstorm excuse” had taken hold. The thinking was that even if this morning’s payroll
data was dreadful, it would be shrugged off as weather related. Thus, good news could help but bad news couldn’t hurt.
So, buying began since the news probably couldn’t hurt you.
The net result was a low volume levitation that let the averages close near the highs of the day. The lack of volume,
however, kept the action from being conclusive.
Cocktail Napkin Charting – Thursday’s low volume levitation turned the Dow positive for the year. The S&P turned
positive earlier in the week.
Yesterday’s high in the S&P was just shy of 1124. We suggested yesterday that you might need a close of 1125 or higher to point to a possible retest of the January highs.
For today, the napkins hint resistance may sit around 1127/1130 and support around 1113/1116. Again, it’s a close above 1125 we’d like to see, and especially on higher volume.
More Pressure On The “Dollar Carry Trade”? – Up till now the primary pressure on the dollar carry trade has been the flight to safety buying of the greenback in the face of the Greek crisis or some geo-political event. Now another sign of pressure is showing up.
Here’s a bit from Bloomberg:
March 4 (Bloomberg) -- The cost of borrowing in yen for three months between banks fell below the dollar rate for the first time since August, reducing the appeal of the greenback as a funding currency for leveraged purchases of assets.
The London interbank offered rate, or Libor, for three- month yen loans fell to 0.251 percent, compared with 0.252 percent for dollar loans, according to data from the British Bankers’ Association. The dollar Libor rate had moved below its yen counterpart last year for the first time after the Federal Reserve held interest rates at a record low.
Investors borrowing greenbacks at record low interest rates and buying assets in countries offering yields higher than U.S. deposit rates had helped to push the Dollar Index to a more than one-year low in November. The dollar has gained about 9 percent since then as the U.S. economy showed signs of strengthening faster than in Europe and Japan and the Fed began to wind down emergency lending programs.
“This not only closes the gap with yen Libor but makes the dollar no longer the most attractively priced currency for these carry trades,” said Ashraf Laidi, chief market strategist at CMC Markets in London. “This is already giving support to the dollar, which will continue.”
Our friend, Kevin Ferry has correctly been pointing toward Libor for some time. It will tell us a lot as inter-bank lending begins to normalize. It will bear careful attention in coming weeks.
Is China Harboring Scores Of “Californias”? – There are concerns growing about municipal and provincial debt in
China. Professor Victor Shih has recently warned that –
Borrowing by local-government entities, not counted in official estimates of China’s debt ratios, may push up the country’s borrowing to 96 percent of GDP ……
Shih’s comments follow somewhat the warnings from folks like Rogoff and even Jim Chanos. Here’s what Bloomberg
wrote recently:
Surging borrowing by local-government entities, uncounted in official estimates of China’s debt-to-GDP ratio, is the key reason for Shih’s concern. Harvard University Professor Kenneth Rogoff said Feb. 23 that a debt-fueled Bubble in China may trigger a regional recession within a decade, while hedge-fund manager James Chanos has predicted a Chinese slump after excessive property investment.
It is a little talked about issue that bears close attention.
Consensus – Payrolls and the dollar likely set the tone. Athens’ streets may also influence. Stay very nimble.
Trivia Corner
Answer - Al is 6, Mike is 9 and Jack is 20.
Today's Question - Give me a sporting chance - spell the name of a popular sport backwards and the last 3 letters give you the name of a piece of equipment needed in that sport. What is the sport? What is the equipment?
History:
On this day in 1806, one of the best examples of American capitalism took place. It had it all. A product that could be produced very cheaply. A group of people who could use the product. A clever but inexpensive means to transport the product from where it was made to where people needed it.
On this day in 1806, Fred Tudor arrived in the Caribbean port of Martinique. Tudor had sailed from Boston with a shipload of ice that had been harvested in the dead of winter from his dad's pond. Despite the claims of critics, Tudor made the ice last by insulating it with sawdust and hay (which were naturally to be washed off when the ice was sold).
The first day of Tudor's arrival was a smashing success. People paid high prices for the product he offered. But the next day...that was a problem. They had unloaded all the ice and, the boys at the dock, trying to be helpful, had washed off the insulation. Net result...night two...puddle of water….lots of screaming people offering to pay any price for the ice they now missed. Thus Tudor's ice idea was a failure...but he had learned two key parts of marketing....keeping a product fresh (storage) and how once you create demand people will pay up in scarcity. He returned to Boston, poorer but wiser.
There he raised new capital and bought the rights to harvest ice from several local ponds. But travel got risky as the War of 1812 broke out. After the war, however, Tudor sent a ship to Havana...not with ice but with thick cedar planking and sawdust...he was going to build an ice-house in Havana to keep the ice fresh. Then he sent some ice to see if the ice-house worked. It did.
He then asked for a ten year exclusive contract to be the sole supplier of ice to Cuba and Martinique. No one thought it was a big deal since folks were not used to having ice in those locales. Then he started giving the ice away, especially to bartenders (along with exotic frosty drink recipes). The "free ice" created a demand, so then Tudor began charging higher and higher prices (remember the exclusive). This ingenious marketing concept was later adopted by King Gillette and is commonly called the razor/razorblade theory. (You practically give the razor away and when they need new blades only your blades fit that razor....Op. Cit. "Barbie & Ken dolls.") Tudor went back to New England bought up the ice rights of hundreds of ponds, commissioned the manufacture of huge ice saws to cut the blocks of ice from the ponds. He compounded the strategy all through the South (one source says he invented the mint julep just to sell more ice). For 80 years, Tudor and his heirs were the "Ice Kings" of America. All from a product nature supplies for free. And he became a multi-millionaire in the process.
Thursday, the market shook off the late session chill it had experienced earlier in the week. That levitation gave the bulls some welcome breathing room.
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Gosh, I think I miss his comments the most since I've taken a one month vacation from the market.
Happy one year anniversary of the "official" bottom (closing low)
Athens streets, in the meantime, have spoken.
tennis ~ sinnet ~ net
What? Not racing ~ gnicar ~ car? But I suppose there are other forms of racing.
Anyone know the dollar value of each of the Treasury auctions next week?
Monday
3 month
6 month
Tuesday
4 week
52 week
3 year
Wednesday
10 year
Thursday
30 year
Thanks.
damn, freshwater ice? diarhea anyone?
Yes, I believe they call that frozen concoction a brown bomber.
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Every day, it's "stay never nimble". Does that mean keeping the forefinger even closer to the mouse button? Moving the toilet beside the desk? Is there a time when one should not be nimble?
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