Buzz on the Street: Investors Hold Breath Ahead of Next Week's FOMC Meeting
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Here is a small sampling of this week's activity in the Buzz.
Monday, September 9, 2013
The Bull Case Is Strengthening Once Again
I added a position in the Small Cap Growth ETF (NYSEARCA:IWO) at about a 15% position size. This is slightly larger than normal, but I like the risk versus reward. This brings the portfolio back up to 55% invested on the equities side with an overall beta of around .70. If we close strong, I will add even more exposure on the close, bringing it up toward 75-80% invested and a beta of around 1.0. I continue to see laggard charts healing and breaking out from lower level ranges. I also love how well growth held in over value as indicated by IWO only riding the 50-day moving average higher rather than breaking it and fully breaking down. Was that the dip? I don't know, but I am anxious to put capital back to work to lock in alpha created from selling higher.
Banks held in well, and many Europeans held their 50-day moving average. Down cycles usually have a life span of about 20 or so trading days, so this one has fit many of the parameters necessary for me to feel OK scaling back in.
Once we cross the 50-day moving average on a closing basis, I plan to be fully invested once again.
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1987 and Chemical Weapons
It's morbid trivia, but aside from some chart similarities (if August highs hold), we also had a chemical attack in 1987 -- June 28 to be precise.
Given that the crash occurred 27 trading days after the August 25 high (chart), the same timeline would put us around Wednesday this week. This is just a random thought, but given the complacency this market has exhibited no matter what circumstances, comeuppance is coming one of these days. Crash bets are always very low odds, but one should always maintain a certain degree of awareness.
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At the risk of stating the obvious, we should see this bond weakness continue into tomorrow before we find out what's what at the auction. Below is a brief chart of the two coupon auction weeks from August. The last week of 3, 10, and 30-year auctions saw weakness going into the 3-year auction (tomorrow) and strength coming out. Coincidentally, after a strong ADP and weaker NFP, August was also the first time we saw direct bidders return to auctions after shunning them for two months.
The unadjusted figures from the July consumer credit report showed continued growth in auto loans and student loans, but zero growth in revolving consumer loans (taking on additional credit card debt or new consumer based loans). So there is no reason to think that higher rates is harming auto loans. But still, there's a lack of consumption growth.
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Tuesday, September 10, 2013
Turnaround Tuesday Arrives on Cue
You almost have to smile.
Last night, I attended the New York premiere of Money for Nothing: Inside the Federal Reserve. This project has been in the works for many moons and it was well worth the wait.
The cast is a venerable who's who in the financial marketplace, including current and former Fed officials (Paul Volcker, Janet Yellen, Alan Blinder, Peter Fisher, Dick Fisher, Thomas Hoenig, Jeffrey Lacker, Charles Plosser, William Poole, Marvin Goodfriend), economists and historians (Michael Bordo, Dave Colander, Jim Grant, Martin Mayer, Allan Meltzer, Raghuram Rajan, Richard Sylla, Bill White) as well as traders and investors (Peter Atwater, Tony Boeckh, Jeremy Grantham, John Mauldin, Barry Ritholtz, Gary Shilling, John Succo and yours truly).
The story is a familiar one, albeit a deeper dive into the personalities and mechanics behind the U.S Central Bank. The history is rich with power and intrigue, leaving the audience with enough information to make an educated decision about the motivations and agendas of those pulling the fiscal and monetary puppet strings. Perhaps most refreshing is the candid look at the perpetual cycles of booms and busts, how they have manifested in size and scope and the current attempt to change the natural ebb and flow of the business cycle.
There is the requisite hubris (Greenspan) and academic philosophies (Bernanke) culminating the current crescendo of cumulative imbalances that dwarf historical precedent. The dot.com bubble was replaced by the housing bubble which was replaced by the government bubble, replete with many of the unintended consequences that we've attempted to map here in Minyanville. The common thread, of course, is that conventional wisdom, along with price action in the marketplace, sounded the all-clear at the time when caution was most warranted, over and over and over again.
Of course, we awoke this morning to higher equity prices around the world, due in large part to the specter of a diplomatic resolution to the Syrian stand-off. At the same time, equity bulls are attempting to push stocks through layered resistance in the S&P (INDEXSP:.INX) per the chart below, almost daring the bears to get in their way. As time and price is the ultimate arbiter of variant financial views, this must be respected, if and when.
As Jim Bruce and his team remind us in his excellent documentary, however, the financial fabric remains a tangled web of debt, derivatives and leverage, a cornucopia of tinder looking for a match. Syria, much like Lehman Brothers, is a symptom, not a cause, and seeds of discontent continue to percolate under a seemingly calm financial surface. That might not be today's business but if we've learned anything through our years together, it's that history doesn't always repeat but it often rhymes.
Good luck today.
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Credit Check: Party On
The bond party continued yesterday even if with some wrinkles. The CDS of large US financials were generally tighter, broad index high-yield CDS were much tighter, and the US CDS printed a new 5-year low at 18.5bps. 2-year swaps were as low as 14bps yesterday morning but closed in the mid 15s. High yield rates were slightly higher.
And then there is the issuance story: $5.95 billion of new bonds were sold, including an upsized $1.9 billion issue by Whiting Petroleum, a BB credit that paid a 5.75% for $800MM of 7.5-year bonds. Think about that. In addition, buyers took $2.42 billion of Citigroup (NYSE:C) bonds off the FDIC's hands; this money didn't go to C, but it nonetheless shows the avid demand for bonds.
And lastly, one could argue that corporate issuance would have been even larger yesterday if it weren't that Russia and South Africa sold an aggregate of $8 billion worth of bonds. The wave of CDS tightening is continuing this morning with the addition that Spain and Italy CDS are joining in.
The party in fixed income keeps going and as I've been harping on for months now, it will be very difficult for bears to do serious damage to equities, let alone start a new bear market, as long as companies continue to be handed money for nothing.
Apple (NASDAQ:AAPL) is now 3 weeks from the 512/513 square-out noted in this space.
See Apple's 512/513 square-out chart below.
Despite today's rollout, Apple is threatening to snap its well-tested 20 DMA.
Filling yesterday's gap and offsetting Friday's tail looks like a bearish sign, implying a lower high has been installed.
See daily Apple chart from the end of June with its 20 DMA below (second chart).
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