Put a fork in it - Kevin Depew - 4:00 PM
Well, that's that. The Dow 11,000 level is safely behind Hoofy now as we close the book on another session. Boo, once again, noted the lethargic volume and pointed to the calendar - "Turnaround Tuesday," he whispered.
John Succo, again, hit the nail on the head below when he noted that "being bearish means markets under-estimate risk." How that risk manifests itself is a different question entirely. How one chooses to position for that is a question that can only be answered within. For some, the correct approach may be to do nothing, for others it may mean raising cash or reducing speculative positions.
The indicators I follow and write about continue to suggest risk is very high, but that does not mean a collapse must occur, or even a correction. When I was a kid my mother warned my brother and I not to shoot at each other with BB guns. You could lose an eye, she said. She was right. Shooting BB guns at each other raised the risk that one of us could lose an eye. We went ahead and did it anyway. Neither one of us lost an eye. Part of the key to successfully navigating financial markets is understanding that the outcome, positive or negative, is independent of the risk assumed.
Credit boom, where did you go? - Kevin Depew - 3:18 PM
Consumer credit was down another $600mm and the last record-breaking drawdown of $7.2 bln was revised to come in even worse, down $8.4 bln. Economists were actually expecting an increase of about $4.8 bln.
Earlier today, Atlanta Fed President Jack Guynn said, "the economy is stronger than people think." Yes, he is probably right. But the disconnect is that it doesn't matter how strong the economy may really be, what matters is how strong people think it is.
If there is a better indicator of a credit boom turning into a credit bust, I'm not sure what it would be, and a credit bust = deflation no matter what the Fed does.
Mini-Minyan Mailbag - Kevin Depew - 2:55 PM
What does point & figure say about gold now? Judging by the underperformance of the gold stocks, I would think a correction is in order.
Since writing about the bullish shakeout in the Philadelphia Gold & Silver Index (XAU) in October, the XAU is up about 30%, compared to 12% for the metal itself. I look at a point and figure relative strength ratio measuring the XAU vs. gold to determine potential allocation (see this article). The XAU vs. Gold chart actually improved on January 3 of this year. However, and this is very important, I also look at percent-scale ratio charts to try and identify extremes. A 1.5% scale ratio chart of the XAU vs. gold shows that this outperformance is very mature, reaching levels last seen in January 2004. This chart gave a sell signal on January 13, 2004, and from that sell signal to the first buy signal, May 19, 2004, the XAU was down 20% compared to just 10% for the metal itself.
See the charts here:
XAU vs. Gold
XAU vs. Gold 1.5% scale
Position in gold, silver, gold and silver stocks
Flashback! - Bill Meehan - 1:47 PM
This day in market history...
Closing levels 8 years ago found
S&P 500: 927.69
This day in Minyanville history...
In '04, Prof. Goepfert scribed an excellent piece on the battle of Price vs Sentiment.
In other news...
- In 1951, the United Nations headquarters officially opened in NYC.
The early buzz... - David Miller - 1:24 PM
...from the JPM conference is tentatively positive. Those who make their living focusing on small and mid-cap biotech got creamed last year by the BTK. Therefore, nobody wants to make bold predictions. People are well-researched and confident with their portfolios, they just are leery concerning exactly WHEN the payoffs will arrive.
This year's early performance in the NBI names absolutely has people paying attention. Whether that adds buying pressure to the drivers I've already outlined (or finally makes short interest matter) is not yet known.
Boom Boom Bust - John Succo - 1:01 PM
If the Fed were honest they would just say what is really going on.
The U.S. economy is rapidly losing its manufacturing base. Companies continue to squeeze costs, the final round being concentrated in pension and health care costs.
This negative pressure on growth is being compensated by speculation: high and ever rising asset prices fuel leverage. Income is being replaced by capital gains.
This necessitates ever higher asset prices like stocks to keep the process (ponzi) from falling apart. Ever bloated balance sheets. So the Fed has targeted such. Last week M3 exploded by $40 billion.
Round and round it goes as the Japanese print yen as fast as we print dollars. No one is getting wealthier, we just have more currency that is worth less.
Mini-Minyan Mailbag - Jason Roney - 1:00 PM
Prof. Roney -
I can't remember ever seeing five days in a row of double digit gains for the Nasdaq. Is this signifigant?
Minyan Dr. 6
Today is far from over, but a close above 2315.5 would mark the fifth consecutive gain of 10 or more points for the Nasdaq Composite. Not surprisingly, this is a rare occurrence since the March 2000 high.
Since then, we've seen this just three times: Sep 3, 2003 (streak extended 6 days), Jun 29, 2001, and June 21, 2000. The index was lower 5 days later each time.
From 1999 until the high in 2000, there were 7 occurrences. The forward performance was mixed (higher 5 days later 50% of the time and lower 5 days later 50%).
The longest streak of 7 days happened twice: Dec 1999 and Feb 2000.
Yo homie!! - Fil Zucchi - 11:10 AM
As the homies' stocks defy the buzz of a slowdown, the slowdown continues to defy the buzz in the homies' stocks. Remember that about 6 months ago many homebuilders - notably Toll Bros. (TOL) in the NY/NJ area, and Beazer Homes (BZH) - started flaunting their shift away from single family homes and toward condos.
Anecdotally, I can tell you that about 2 months ago a smart, decent size local developer unloaded its entire risk at a small loss in a prime condo development; there are also rumbles that another large local outfit which pro-formed two separate projects at $900/sq.ft sale prices, might soon bite the bullet and start selling at break-even/loss as pre-construction sales are lagging badly.
Positions in HGX, TOL, BZH
General Malaise? - Tom Peterson - 10:37 AM
We thought General Motors (GM) might make a low around $18.60 (the print low was $18.33) then bounce to above $20 to possibly $22. It is pretty close to $22 now - is there more room above? Yes.
An oversold weekly reading in the exhaustion index was created as of December 30th. Last week provided an upside reversal from the seventh such extreme in the past thirty years. A test of the 20-week exponential moving average (currently $25.35 and falling) should provide an optimum selling opportunity for the next downside move. Also, there is some resistance around the April 2005 low in the same vicinity just below $25. So there is a little room here for it to try higher before the next leg down. We see Goldman upped it slightly this morning as well.
See the chart here.
State Of The Markets: Weekly Review - Phil Erlanger- 9:47 AM
The Dow Jones Industrial Average, S&P 100 and the NASDAQ 100 moved higher last week starting the New Year off with a bang. The daily Squeezeometer signal for the NASDAQ 100 Index moved from cash/speculative sell as of December 6 to buy on January 6. The S&P 100 Index moved from cash/speculative sell as of December 2 to buy on January 6.
Our 14-day choppiness index for the NASDAQ 100 moved from 46 to 39 over the past week. The choppiness index ranges from 0 to 100, and the lower it goes the more a trend is evolving. The trend is now to the upside. The S&P 100 choppiness index moved from 52 to 48 over the last week. The NASDAQ 100 and S&P 100 moved back above their weekly DMA channels.
Bid Wars - John Succo - 9:03 AM
We had thought that Boston Scientific (BSX) would enter a revised bid for Guidant (GDT), but they stuck to their price and have entered a formal bid estimated to bring GDT shareholders around $72.
When we handicapped GDT distribution of stock prices last, however, we mentioned a caveat based on BSX motive. It seems BSX motive is partially to hurt Johnson & Johnson (JNJ), thus the aggressive bid.
This ironically makes the whole situation have more risk in the long-run for GDT can screw things up if they have hidden anything.
But GDT stock is likely to trade $67-69 through January expiration as things get sorted out.
The next step is for GDT to go one way or the other. If they go with BSX, they pay a fee to JNJ and JNJ has five days to pull their bid or change it.
Positions in GDT and JNJ
Say What? - Kevin Depew - 8:37 AM
A look at commentary, opinion and analysis from around the world:
Warning: Beware of Warnings About Real Estate, writes Vivian Marino in the New York Times Mutual Fund Quarterly Review. "The overall case for real estate remains strong."
The Financial Times takes a close look at Shell's Sakhalin - "The industry's daunting future."
"In the long run we are all dead," said Keynes. Moving beyond glibness, Ludwig von Mises said: "The task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempts to remedy a present ill by sowing the seeds of a much greater ill for the future." With that contrast as a starting point, this BIS working paper asks a rather reasonable question: Might we benefit from a new macrofinancial stabilization framework in which we pay more attention to avoiding the emergence of economic imbalances in the first place?
I bet you didn't know that....... - Bennet Sedacca - 8:16 AM
Since 1965, seasonality of government bond prices has been negative in every month from January to May and positive in nearly every month from June to December.
Why do I bring this up? Because if the Fed does indeed raise rates on January 31, and the rest of the curve doesn't sell off beforehand, we will have serious inversion, something I doubt Bernanke wants to start his term with. So, we remain willing sellers of strength, particularly in the long end of the municipal curve, where supply has dried up and prices continue to rise.
I have never gone broke taking a profit, and in addition, hedgers in the recently released COT data have been selling strength as well. We will likely park our cash in the very front end of the Treasury curve and see what develops.
Positions in various long-term municipal bonds and municipal bond funds.
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