Morning Musings From Art Cashin - St. Patrick's Day Edition
Via UBS Financial Markets
Currency Curse Continues Complicating Life For Commentators – Market pundits scrambled to fill up air time by attributing the market movement to this data or that comment. The market rally catalyst was quite singular however.
As rumors spread of a firmed up Greek rescue package, and the S&P suggested it was shifting Greece out of ICU, the Euro soared. It spiked 0.7% which is a significant move in the currency arena.
The result was immediately evident and dramatic. Gold spiked $20 and oil shot up over $2. Those moves came long before the FOMC statement. Those moves were not influenced by some piece of economic data. Those moves were not the result of some shift on the outlook for the President’s health plan. Those moves were the direct result of the jump in the Euro and the correspondent weakening of the dollar.
We believe that the Euro/Dollar move was also the primary catalyst in the stock market. Given the action in gold and oil, the stock market’s reaction was rather mute. With such a strong tailwind, you might have expected something like a 100/150 point move in the Dow. The real question on stocks was what was holding stocks back given the currency boost.
The restrained action in stocks was also noted by the WSJ (albeit from a slightly different direction). They discussed it in a story headlined – “For the Dow, the Quietest 6-Day Steak”.
Although the stock market was muted, it did move the ball. The S&P closed above 1159. It hadn’t closed at a level that high since early October 2008. The Dow moved up 44 points but failed to take out the high of 10725, which leaves the outside risk of a Dow Theory non-confirmation as a lingering possibility.
The bulls got the S&P clearly through 1150 but failed to close above the backup certification at 1160. It was a victory but not quite the rout they were hoping for. Crossing 1150 failed to inspire a sudden rush of short-covering, which many presumed would occur. Breaching a key target should not be accompanied by a yawn.
Takeaways From The FOMC Statement – As the pundits are noting this morning, the FOMC statement was not substantially different from the statement of January 27th.
Of note (to us) is the change in wording on the labor situation. In January’s note, they said “that the deterioration in the labor market is abating”. Yesterday, they said “that the labor market is stabilizing”
So, in January they saw the labor market worsening but at a slower pace. Yesterday, they suggested things were stabilizing – in essence – bottoming out.
Overall, the new statement seems to suggest that the Fed is clearly homing in on jobs. That may be their guideline for the timing of any policy change. They are also focused on the housing market. There was also a hint that business inventories had re-built to somewhat worrisome levels.
The Greek Problem Has Not Exactly Disappeared – While the S&P appears to have been mollified and front page headlines are fading, the concerns about Greece and the Euro continue. Here’s a bit from a piece on Bloomberg:
March 17 (Bloomberg) -- Harvard University Professor Martin Feldstein, who warned almost two decades ago that the euro would prove an “economic liability,” said Greece’s austerity plan will fail and the country may quit the single currency to fix its fiscal crisis.
Under pressure from investors and fellow policy makers, Prime Minister George Papandreou’s government is striving to knock four percentage points off its budget gap this year from 12.7 percent of gross domestic product and has vowed to meet the EU’s 3 percent limit in 2012 for the first time since 2006.
“The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy,” Feldstein, an adviser to U.S. presidents since Ronald Reagan, said in a March 13 interview in Geneva. “The alternatives are to default in some way or to leave, or both.”
His diagnosis clashes with that of European Central Bank President Jean-Claude Trichet, who calls Greece’s strategy “convincing” and rejects as “absurd” any speculation it might leave the euro zone. Investors nevertheless aren’t ruling out Feldstein’s analysis. Billionaire George Soros said last month that the euro “may not survive,” and credit default swaps indicate a 22 percent chance Greece will default within five years, up from 16 percent a year ago.
The judgment of Feldstein, 70, a former contender to chair the Federal Reserve, marks his latest broadside against the single currency five years after he said its rules generated a “very strong bias toward large chronic fiscal deficits” and more than a year since he first suggested the 16-nation bloc may splinter.
In addition to the Bloomberg story, today’s NYT has an article titled: “Ailing Euro Seen As A Signal of Deeper Woes on Continent”. It does not portray a rosy future for either the Euro or the European Union.
Further, in today’s FT, Martin Wolf analyzes the posture of Germany and China toward debtor nations. He believes that if their current attitudes are continued, global deflation could result. That could make “double dip” seem pleasant.
Cocktail Napkin Charting – Tuesday, we said that the napkins suggested resistance in the S&P looked like 1156/1160. Yesterday’s high was 1160. For today the napkins suggest resistance is likely 1166/1170. We’d love to see some sign of a breakout if that level is breached. Support looks like 1148/1151.
Today – Bernanke testimony could be a factor but continue to watch the dollar. Action in crude and gold will help you measure influence level.
At any rate, in honor of St. Patrick and at the risk of becoming the Salman Rushdie of the Hibernians, I will reveal to you a secret Irish prayer that St. Patrick gave the Irish in 452 A.D. For over 15 centuries it has been whispered in the ear of each Irish lad on the day before he receives his first corkscrew.
"For those who are with us
May God turn their fortunes bright
For those who are against us
May God turn their hearts toward us
And if God cannot turn their hearts
May He at least turn their ankles
So we may know them by their limp!"
Consensus: Up the rebel, up your spirits, up your glasses and let the market take care of itself.
Answer - The one word that fits in both blanks to make sense of the sentence is "reverse" as in" "Esrever is reverse in reverse."
Today’s Question - Silly Rebus - If "CCCCCCC" is "Seven Seas", then what are these: "JOANB" (A crime?); theTHE (Alpha & Omega); ATTE (the critical point).
On this day in the year of our Lord 389, there lived a foin broth of a lad who was.... dependin' on the boyographer ye read: a Spanish peasant, a French herdschild, a Celt from Bannavem or a Gael from Dumbarton, Scotland. At any rate, at age 16 this lad was kidnapped by pirates and sold to one of the only 2,500 Irish kings that were reigning at the time. He served this King as a swineherd mucking out stys and such. For six years he labored in slavery, poorly fed; often beaten; surrounded by people who spoke a language he couldn't understand. Then he discovered that six years of such treatment was equivalent to a parochial school education. So he became a Catholic and escaped to France to become a monk.
Upon becomin' a bishop he mistakenly perceived the French to be a bunch of snail eatin', grape juice drinkin', truffle huntin' toads. He longed for the emerald green fields of God's own land and the special amber holy water found there.
He returned to Ireland which was still under the influence of a group of heathen English druids and a few nocturnal banshees. Nonetheless, he set about convertin' and baptizin'.
Unfortunately Patrick was not an MBA and, therefore, did not know the law of diminishin' returns. So he managed to baptize over 120,000 people, built over 300 churches, chased the snakes out of Ireland, developed the shamrock and established a factory to make pennants with the slogan "Go Notre Dame".
To celebrate the life of this fabulous man, sing ye some sad songs, talk ye merrily of battles and take ye a wee nip of somethin' till ye might be seein' da little people.
It was not the little people that bothered markets yesterday. It wasn’t even the little changes in Fed language. What moved the markets was movement in the Euro – and that was not so little.