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Morning Thoughts From Art Cashin
Via UBS Financial Services
Dollar Dominance Of Markets Continues But Dismays – The surprise Fed boost in the Discount Rate late Thursday had sent the Euro reeling and the Dollar (DXY) soaring. That, in turn, sent commodities and stock futures into a tailspin. That relationship continued into the late hours of Thursday night and early Friday.
Around 4:00 a.m. (EST), the dollar rally stalled. Commodities and stock futures regrouped. As the opening on the NYSE approached, the dollar began to recede slightly. That eased the pressure on both stocks and commodities.
Stocks opened down marginally and by 10:00 began to turn up as the dollar eased further. Stocks and commodities continued to firm as the dollar rally faded further.
The moves were not dramatic but it was easy to see as stocks, oil and gold moved in virtual lockstep.
This continuing dollar dominance began to wear on the nerves of traders. More than a few noted that the dollar arbitrage had moved oil to within pennies of $80. Was $80 a threat to the staggering economic recovery? If so, why were stocks rallying? Was this the “new un-normal”?
Despite the apparent paradoxes, stocks, oil and gold moved to simultaneous small gains. Volume was a touch higher thanks to Expiration activity, but the activity was anything but robust. That was yet one more frustration to traders.
Did The Fed Misfire? – As we noted in Friday’s Comments, some traders thought the surprise Discount Rate hike by the Fed may have been a pre-emptive strike at inflation expectations and the bond vigilantes. The Fed has said over and over again that inflation “expectations” are a primary concern of theirs. By the time actual inflation breaks out, the Fed would be behind the curve, so it is expectations they monitor.
Thursday morning the PPI spiked sharply. That, some thought, may have inspired the surprising Discount Rate hike in the late afternoon. If so, the Fed might have fired too soon.
Friday morning, the CPI was downright deflationary. The core CPI fell 0.1%. The last time we had a negative reading in the core CPI was way back in 1982. That’s 28 years ago. And, that was when Paul Volcker had interest rates at double digits trying to drive inflation out of the system.
Traders speculated that the jump in PPI and the dip in CPI might be a function of management. Companies could be absorbing the higher prices in raw materials (global demand); to keep finished products lower for their clients. It’s an interesting hypothesis.
Cocktail Napkin Charting – Friday’s currency inspired float up took the S&P through the initial resistance 1103/1108. The rally came up just short of the second tier resistance at 1113/1118. The close at 1109 took the S&P just through the 50 day moving average (1108.56).
For today, the napkins suggest resistance at 1113/1118 and then 1124/1129. Support looks like 1098/1102 and then 1088/1092.
A Greek Recue Package? – Over the weekend, Der Spiegel carried a story that the German government was cobbling together a package to address the looming Greek crisis. The rumors are that the package may be in the form of loan guarantees.
As we projected when the crisis arose, it could take the form of Germany and others backing the 22 billion in Euro bonds that Greece will need to refund in April and May. Using backing in the package would mean no initial outlay from the rescuers. It would also allow Greece to do the refunding at a “normal rate” instead of a panic premium. That seems to be the current thinking.
Some currency traders speculate that a rescue package may not rescue the Euro so readily. They think that, with so many ailing members, the ECB will be forced to keep rates low longer than other central banks.
More Spots Before My Eyes – The re-appearance of sunspots continues. The numbers for February 11th through the 17th were: 64, 38, 37, 28, 27, 28 and 49. So, as you can see, each day had more than one spot. That’s the second straight week of significant activity. Maybe the cycle is finally turning. Let’s give it a couple of more weeks to validate.
Consensus – The currency influence will continue to perplex traders and control markets. You need only to compare stocks, gold and oil to see the level of dollar domination. Stay very nimble.
and some history:
On this day in 1630, an American tradition was born. The Pilgrims had been in America for nearly a decade. But poor shelter, bad weather and worst of all, the flu, had made it less than a pleasurable experience. (The flu...or something like it...had killed off more than half the Pilgrims.) So this dark and frigid February cold was causing a serious outbreak of depression among the recent settlers.
Then a small party of local Indians, led by a minor Chief named Quadeqina, brother of Massasoit, entered the village to cheer up the Pilgrims. What they carried was many ears of dried corn. Just what you need to perk you up - -no deer, no turkey, no meat, no hope. (Could these guys be from the government??)
But Quadeqina did not suggest grinding the corn into meal. Instead he put the corn on the heat above the fire. In a few minutes the corn began to burst, or more correctly - - pop. The Indians picked up the "popped corn" and began to eat it. And one after another, the Pilgrims, just to be courteous, did the same. Holy Smokes; they thought, this is what freedom is all about - - truth, justice and lots of healthful fiber.
And so a nearly 400 year American tradition began. To mark the event just bring something new to the marketplace and intone the ancient Algonquin introductory words of Chief Quadeqina which live forever as part of American lore - - "New, light, healthy, and tasty."
To celebrate take Priscilla Reddenbacker to a Paul Newman flick. But bring ye not a crossbow.
There were crosscurrents rather than crossbows on Wall Street Friday. And, there was even a little popping as the day came to the close.
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This assumes that the Fed does NOT get an advance peek at the CPI numbers. I'm not sure that is a valid assumption...
http://market-ticker.denninger.net/archives/1984-CPI-Number-Reported-INT...
Interesting. I wonder whether there is another explanation...
I was amused by that rapid about face as well.
We live in peculiar times.
"Traders speculated that the jump in PPI and the dip in CPI might be a function of management. Companies could be absorbing the higher prices in raw materials (global demand); to keep finished products lower for their clients. It’s an interesting hypothesis. - Art Cashin"
Apparently Art doesn't do his own shopping.
Art's a floor Hall of Famer. Its nice to know that Tyler thinks enough of him to post his comments on ZH. Hey Tyler, is he a reader?
Dallas Fed:
Several indicators of current factory activity turned negative in February, reversing recent months’ improvements. The new orders index fell from 27 to –6, with the share of respondents reporting decreases more than tripling from January. With new orders falling, indexes for shipments and growth rate of orders also retreated, turning slightly negative. Capacity utilization was unchanged from January as the index came in at zero.
Echoing Cashin:
Upward pressure on raw materials prices continued in February, with 41 percent of producers reporting rising input costs. The finished goods price index remained close to zero, suggesting minimal pressures on selling prices. Expectations of upward price pressures over the next six months moderated in February as both the future raw materials price and the future finished goods price indexes edged downward.
http://www.dallasfed.org/data/outlook/index.html
i have read art for the last 12 years. the evidence says that yes he is a reader of ZH.
Traders speculated that the jump in PPI and the dip in CPI might be a function of management. Companies could be absorbing the higher prices in raw materials (global demand); to keep finished products lower for their clients. It’s an interesting hypothesis.
One thing that we have been seeing in the construction industry is that construction contracts are being bid at material costs or very little profit margin in order to maintain employees and/or reduce the losses. We keep wondering how long this business model can last. We have heard smaller contractors saying that the operating fund is gone, reserve fund is gone and the retirement fund is gone... all in an effort just to stay afloat. It makes you think that companies are operating at a loss, just to maintain cash flow. Face it, if a small businesss is only losing $100 a day by being the lowest bidder, then at least they are not losing $1000 per day for a contract that they didn't win. They can always default on material costs/loans if it gets too bad. Welcome to the new normal.
US labor is getting marked-to-market at its global value, which is about $2 a day.
CPI: food and energy costs were up, used cars were up, medical costs were up.
Owner's equivalent rent, new cars, and things like vacations (airfare and lodging) were down.
So basically the costs of things you need, like food, energy, and health, were up, and things you either already own (housing) or don't need (new cars and vacations) are down.
Just more evidence of the destruction of the middle class.
By the time you're 150 years old like Art is, you should stop believing in voodoo like sunspots. Bill Bonner is right. The whole show is comical.
If they are "voodoo" as you posit, then why did the FED issue a white paper noting their effects on markets?
(Bank of Atlanta, Working paper, 2003-5b, October 2003)
The world would be a much better place with more Art Cashins and less Jim Cramers.
Art Cashin: If you are reading this...."you rock and keep up the great work...I thoroughly enjoy watching you in the mornings..even from where I live-West Coast"...
Signed-TheWhigs....
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