Buzz on the Street: The Ecstasy of Gold Is Gone
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, June 24, 2013
Did the Bears Get Complacent?
Check out this image of Oppenheimer's latest technical research note, courtesy of the Reformed Broker.
The entire report simply says "We have no new thoughts. Sell."
We highlight these anecdotes mostly for entertainment value, but are some folks becoming too confident in a big bad decline? Incidentally, Mr. Market's doing a good job of staging a comeback today!
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PBoC: Bringin' on the Heartbreak
Gypsy, sittin' lookin' pretty
The broken rose with laughin' eyes
You're a mystery, always runnin' wild
Like a child without a home
You're always searching, searching for a feeling
That it's easy come and easy go
-Def Leppard “Bringin’ On The Heartbreak”
The Financial Times has a story out today regarding a statement by the People’s Bank of China on the cash crunch. The statement, which is actually dated June 17th but was only released today, confirms that the central bank is in fact taking a hard line regarding systemic liquidity.
Clearly, the new Chinese government is willing to take a much stricter view on the growth of credit in the Chinese economy than its predecessors. Short term rates have been rising – and even spiking – over the past month and this kind of rate volatility has the potential to lead to liquidity and bank runs. I think we’ve already seen some evidence of that, but it’s been on a very limited basis.
One thing the FT pointed out was that China Development Bank, a state-owned bank, had to pull a RMB20bn ($3.3bn) debt offering but gave no explanation. But given that other top-rated Chinese institutions came up short in their own bond offerings in the preceding weeks, it’s clear that the rise in rates is putting a dampener on credit issuance there. Liquidity, like the love of a mysterious gypsy, can be fleeting.
But back to the nature of the statement of the release: this was a statement that was dated last week, yet the PBoC only released it today? Why? I’m pretty sure the price action in the Shanghai and Shenzhen indexes had a lot to do with it. A 5-6% downdraft in a single day can get a lot of people spooked.
Will this explanation be enough to pacify them? I don’t know. I imagine it’s pretty easy to stoke a greedy banker meme over there, and if folks buy into it, they may not think much of it for now. But if or when this volatility starts to hamper real economic growth, it may not just be the bankers singing Def Leppard in a karaoke bar
Closed-End Fund Bottom Fishing
How do you maximize your purchase? Let’s say you want to buy treasuries, looking around I see some of the closed-end funds (CEF) trading at 8%+ discounts to NAV. This generally means that people are in “liquidate out of fear” or mode. CEFs begin to get distorted as fear runs high. I look for these divergences as opportunities to bottom fish as well as maximize my purchase potential. If said fund trades back to its normal discount to NAV (-1%) then I have a 7% appreciation potential even if bonds simply stabilize here. That sounds like a good deal to me. However there are significant other risks in these instruments, as in they are not very liquid and can easily trade much lower. Once must be comfortable with holding them for a long period and “throwing it in a drawer." I am actively buying some bond CEFs today in several different bond areas. My goal is to purchase ½ positions today and allow for them to move lower should we enter a “waterfall” type event.
Another note on these CEFs, they typically bottom a day before their underlying markets, so it is important to watch them as they can be a tremendous tell for future movement. Unfortunately, I can’t buzz the names as they are mostly illiquid funds.
From an equity perspective, I am very light equities and am looking to buy into the 200-day moving average as mentioned on 5/23.
Tuesday, June 25, 2013
Quick preview on an article I wrote today with a thought on Apple (NASDAQ:AAPL): earnings season is just around the corner, and AAPL has made it clear that pretty much all of their $100+ billion cash hoard has been invested in US Treasuries. I hope Tim Cook spent some time on a swaps desk in his career. No? Houston we may have a problem.
Just a thought...
When Will Emerging Markets Bottom?
Followers of my writings know I have often talked about emerging markets as the "next fat pitch" given how severely they have underperformed, and the mean reversion potential for overseas equities to play catch-up to US stocks. Fears abound over China's SHIBOR, Brazil's protests, slower growth, currency movement, and much more and now appear daily in the headlines. Indeed, the relative momentum remains down, and risk assets broadly still appear vulnerable in the short-term. However, if its in the headlines, its likely discounted.
Our ATAC models used for managing our mutual fund and separate accounts are currently favoring bonds over stocks, but I can easily see a scenario in the coming months in which a full rotation into emerging market stocks begins past this residual taper tantrum. As the market begins to realize just how oversold inflation expectations and emerging market equities are, a meaningful move can occur and be the big trade for the 2nd half of 2013. And with the ratio of iShares MSCI Emerging Markets Index (EEM) to SPDR S&P 500 ETF (NYSEARCA:SPY) sitting at 2009 lows and relative support, it seems very plausible that we are nearing the end of emerging market underperformance.
1-2-3 on the Runoff
While the runoff yesterday looked discouraging for the idea of a rally attempt, it carved out a potentially constructive 1-2-3 Swing Pullback on the 10-min SPY.
See a 10-min SPY chart below from this morning's Daily Market Report.
Is the SPY/S&P 500 (INDEXSP:.INX) now slated to trace out a larger 3 drives up toward 159/160 SPY (1590/1595 cash)?
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Wednesday, June 26, 2013
Got It, Goose?
You for the need? The need for speed? Be careful for what you wish, Goose. You've just entered the Danger Zone on a technical basis.
S&P 500 (INDEXSP:.INX) 1600 is the first real resistance this week and the underbelly of the broken trend-line is right behind it (well, 25 handles behind it anyway). See the chart below, and never leave your wing-man!
I will also note, while I have your attention, that Goldman (NYSE:GS), Morgan (NYSE:MS) and Apple are all under the floor, so to speak.
GDP Internals and What's Driving Today's Rally
There were three factors behind the decline in 1Q GDP: consumption, exports, and imports.
- Personal consumption took out 0.57% from the 0.6% drop (remember these are QoQ annualized numbers so the quarterly figures are extrapolated to an annualized rate).The quarterly annualized drop was from 3.4% to 2.6%..
- Exports dropped to -1.1% from the 0.8% prior estimate, due to a decline in goods exported from 0.3% to -2.5%. Services remained relatively unchanged at 2.4% from 2.0%. This took another 0.28% out of the GDP reading.
- Imports dropped to -0.4% from the 1.9% prior estimate. Goods down to -1.3% from +1.1% and services down to +4.5% from +5.8%. The net effect added +0.38% to the GDP reading.
1) Worsening economic data causing another bid for Treasuries, meaning that a data-dependent slowing of QE is off the table if the trend continues. Manufacturing has been better in June, kind of a kick-save for the not-so-great April/May, but June's NFP on July 5 still remains the clincher. Remember that bonds/stocks have been positively correlated lately (as in they both move in the same directions rather than opposite).
2) Relief that China isn't blowing up anymore and their money markets are beginning to normalize to a certain extent. The problem still persists in the future that the ability to arb capital inflows by a loophole with onshore and offshore money flows has now been shut down by the Chinese government. More on this later (hat tip to Professor Branden Rife)
3) Conditions were deeply oversold and were alleviated in the past 48 hours.
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Bidless in Seattle?
Now why would someone step on Mr. Gold’s (NYSEARCA:GLD) neck overnight in Asia when there are no bids around to speak of…unless there was a quarter-end agenda?
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