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Morning Musings From Art Cashin
Via UBS Financial Services
Stocks Suffer Distribution Day. Gold Opts Out Of Troika, Temporarily, On Rumors – For the second day in a row, the Dow struggled and slipped in the face of a weakening Euro/firmer dollar. The S&P and Nasdaq tried mightily to stay above water, but, by the close, all three key indices were down. Unfortunately for the bulls, the averages fell on higher volume. That made Wednesday a “distribution day” – a negative technical indicator.
Throughout the morning, stocks bobbed about in negative territory. They reacted only slightly to Fedspeak and to speculation about what might happen at the afternoon’s ten year Treasury auction (see below). When the auction shocked the doubters, stocks firmed somewhat, taking the S&P and Nasdaq into plus territory. Within thirty minutes, they were back underwater.
Some attributed the afternoon weakness to comments from Bernanke. In particular, they cited this rather foreboding line: “We are far from being out of the woods. Many Americans are still grappling with unemployment or foreclosure, or both”. Boy, those are a couple of sentences to wake you up. “Or both”, indeed!
The Bernanke comments did hit the tape around the same time that stocks headed markedly lower. Oil moved down at the same time and in the same manner as the stock market. That lockstep selloff argued more for a currency related trigger.
Some tried to cite the drop in Consumer Credit for the selloff. The flaw in that thesis was that the market was selling off for nearly an hour before the data hit. Further, when it hit (3:00), the market was almost at the day’s lows.
Traders felt the selloff was more directly linked to/caused by a further weakening of the Euro. That, in turn, was likely caused by remarks from Greek officials suggesting that Greece might not need much more austerity. Yeah! Right!
The guessing on the floor was that the Greek officials may have noticed on their TV screens the rioting and shooting in the capital of Kyrgyzstan. They may have noticed that there were reports of the government being driven from office or of officials being hospitalized by mob beatings. To avoid the risk of a repeat in Athens, they may have decided to backpedal on austerity. That would doom any rescue. Greek bonds and the Euro promptly sold off.
Stocks recovered about 40% of their losses in the final 40 minutes. The bounce-back seemed to be more technical/currency driven rather than “news related”. Nevertheless, it was not what the bulls wanted and frustrated their hopes for 11,000.
The Gold Anomaly – As noted earlier, gold seemed to opt out of the usual Pavlovian response to the dip in the Euro. There were several hypotheses for the gold step-out. One was a rumor, actually a series of rumors that one or more gold fund or ETF had scantly any real bullion backing. That would not show up in trading but only if delivery was called for. Some felt the buying of gold was kind of a short covering to reduce the gap.
There were also rumors that gold might be used as the anchor of a new monetary basket that might become a supplemental reserve currency. That thesis may have sprung, in turn, from reports that China is looking to allow the Reminbi to trade with several currencies, most notably the Russian Ruble.
There were lots of other hypotheses and rumors about the gold trading anomaly. Whatever the cause, the anomaly stood out like a sore thumb. It began to disappear overnight.
The Bond Vigilantes Bake Cupcakes – The stage had been set and tension crackled in the air. The yield on the ten year Treasury had shot up 30 basis points in a week. It had moved into the dangerous territory around 4%. It had pushed mortgage rates higher, spooking the housing market. Things calmed every so slightly Tuesday as the three year auction drew “okay” interest.
Wednesday morning bond traders and, even bond observers, wondered aloud what might happen at the afternoon auction of ten year Treasuries. Would the bond vigilantes boycott the auction spiking yields sharply through 4%? Would that signal that the vigilantes had seized control of the rate debate, turning the Fed into a mere spectator?
By late morning, there were telltale signs around the presumed battle field. Interest rate futures seemed to hint that the yield on the ten year might drop after the auction. In the face of the fierce vigilantes? Could they be kidding?
When the auction results were announced, there was no sign of the violent vigilantes. Instead, it looked liked they left four dozen cupcakes (with icing) and a note of apologies.
The bid to cover ratio was 3.72, the highest bid to cover on a ten year since way back in 1994. The yield on the auction was 3.90% which was nearly 5 basis points lower than consensus. Indirect bidders, presumed “foreign” buyers, bought 43.1% of the auction. At the last ten year auction, they bought only 35.1%. In essence the deal was a veritable blowout. Vigilantes, indeed!
While the impressively bid auction buoyed the bond market, it did not satisfy the conspiracy theorists. They claimed it was the Fed who was buying (disguised as an indirect buyer or other). They cited things like discrepancies the purported foreign buying and the foreign holdings that showed up in the TIC report. The debate (and the questions) will continue.
Cocktail Napkin Charting – Same numbers as yesterday. S&P resistance looks like 1192/1195 with support around 1175/1178. Declining number of new highs continues to leave market vulnerable to possible pullback. Hope to discuss “new highs” versus “advances” tomorrow.
Consensus – The Greek crisis is moving to the front burner again. Keep an eye on the Greek/German bond spread as well as the Euro. Watch the 30 year at 1:00. Stay very nimble.
Trivia Corner
Answer - From East to west - Maine, New Hampshire, Vermont, New York, Michigan, Minnesota, North Dakota, Montana, Idaho, Washington and Alaska. We only used states with land to land borders rather than shared bodies of water. By the latter definition you could claim New York bordered on Ireland.
Today's Question - I'm thinking of a two digit number. Its right hand digit is the square root of the number itself. In fact, now that I think of it, there are two such two digit numbers. Can you guess both?
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25 and 36
i think its pretty clear Uncle Art is a Zed-head like the rest of us. Half his comments come from Durdens' posts.
You could also say New York bordered on Tx.
Art is the man -the king of intelligent post-rationalisation.
-Just keep those stomach ulcers at bay, Art.
11
93
For that matter:
FORTY TWO!
25 and 36.
Thanks for letting me get one, Art.
By those conditions, Michigan does not border Canada either
Today's question (unfortunately) was sooo easy.... in faact it's easier than most of the captcha on this site!
Man zerohedge was just getting where people could take it seriously. And you go and write a story like this. You were so close to being a respectable news site.
Sorry trying to help out the opinion molders but that's not what they may be worried about.
Gold's going to $600.
There that should help.
Gold's going to $600.
Yup....just as soon as everything else gets fixed first.
If I had any doubt about the silver and gold manipulation, I don't anymore. No one is covering the story not even Cashin. It has to be true.
'Some tried to cite the drop in Consumer Credit for the selloff. The flaw in that thesis was that the market was selling off for nearly an hour before the data hit. Further, when it hit (3:00), the market was almost at the day’s lows.'
Seriously Art, how long have you worked down there? Walls are not Chinese, they're Les Nessman...