Buzz Bits: Dow, Nasdaq Rally Late
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Editor's Note: This is a small sample of the content available on the Buzz and Banter.
Earnings Report - MV News
- IBM (IBM) reported 2Q EPS of $1.30 vs $1.29 cons on revs of $21.89 bln vs $21.93 bln cons.
- Yahoo! (YHOO) reported 2Q EPS of $0.16 (in-line), ex-stock expense, and $0.11 (in-line) including stock expense, on revs ex-TAC of $1.12 bln vs $1.14 bln cons. OIBDA was $457 mln.
PPI - Political Price Index? - Kevin Depew - 2:20 PM
The 1:53 p.m. Buzz recapped Bill Gross' comments on today's weakness in bonds attributable, he said, to the PPI data. What was in the data to cause such concern?
The declines in natural gas, which was down 3.7%, and electricity, down 2.8%, are ironically inflationary because of our old nemesis the Owners' Equivalent Rents (OER), which accounts for 30% of the CPI. We wrote about OER in Five Things last month ahead of the CPI as well. The way the CPI is constructed, since utilities are netted out of the OER, Merrill's David Rosenberg estimates that OER may have risen as much as 0.4%! He puts the probabilities of a .3% core CPI number at 50-50.
I would encourage you to skip over here to read the BLS' own thought process behind the CPI changes and the OER calculation changes over the years. The contortions used to explain away and justify the changes made to OER over the years are simply mind-bending. I shudder to think about the real political mechanics that created those changes.
Mini-Minyan Mailbag - Scott Reamer - 2:09 PM
It seems that The Professor (Boom Boom) faces the alternative between appearing "strong" in fighting inflation or "stupid" in crushing the slowing economy. Of course, some would say that the Federal owned the inflation anyway via their relentless monetary expansion. What goes around comes around.
You just aptly described the "painted into a corner" conundrum the Fed finds itself. Of course, such a condition is inevitable within a government entity trying to control free markets. Sadly, Ludwig von Mises said as much in the early 1900s and no one has listened...
Paperboy... - Laurie McGuirk - 1:44 PM
Well, the paper players are firmly in control of the gold/silver market at the close, and we are now at a fairly decent support area at 620-30.
Someone's gonna lose a lot of physical metal down here, and I see Mr. Putin smiling all the way to the bullion vaults of whoever supplies gold at these levels.
Position in gold, silver
Homies, as much as I have despised 'em, may be ready for a Snapper soon.... - Bennet Sedacca - 1:39 PM
Look at the chart here of the S&P Supercomposite of homebuilders I have been focusing on for an eternity. We are a scant 20 points or so from MAJOR support that, IF I WERE A TRADER, like my buddy Toddo, I would be looking to buy with a tight stop. I am not a trader so I won't, but it may lend a bid to the market from there if they hold. I think and will always think that this is THE GROUP that controls the destiny of the market, economy and Boom Boom.
I have also noticed a little insider buying in Toll Brothers (TOL) (actually exercises without sales) and short interest building, so a short term squeeze could develop. Resistance obviously exists at 600, so I guess a move from 500-510 to 575-580 is possible. The best way to play is XHB I guess. Just thought you traders out there would want to see what I am seeing, but obviously not advising as they are in a secular bear that isn't close to over in my book.
Pinch hit randoms - Fil Zucchi - 11:54 AM
- With Boom-Boom likely in seclusion trying to figure out how to sound "manly" about inflation without freaking out the markets, the markets are telling him what they think: it starts with an S and ends with " ____flation", and the bottom line is not pretty.
- With that said, pressing the short side here seems a little piggish to me and a bit like taunting Snapper.
- Chatting with other traders, there seems to be a consensous that either the chippies (SOX) catch up to the market or the broader market will get the chippies treatment. Either way the disconnect between the two is now rather stark.
- Whether Target's (TGT) miss is a fucntion of price pressure from Wal-Mart (WMT), rather than falling consumer spending should tell us whether the consumer crunch is spreading from the lower-income folks to the more affluent. If the latter is the case, it's happening rather fast.
- Yesterday Minyan Neal suggested that the "forces of darkness" that crushed the precious ones from $730 to $550 by playing with margin requirements and daily price-change limits, were back at work. While I'll never shy away from a good conspiracy theory, gold has had a $120 move up in a month and a breather to the $620-630 level would not be technically damaging.
- Whole Foods (WFMI) does not report until the end of July. I am squarely on the dark side of this one - one of very few individual names - but with ever more defined risk. As the stock drifts down it becomes more and more a binary play into earnings: if the numbers are decent (not even good) you could easily have $10 of upside; if they are bad you could easily have $15 of downside.
- With everyone seemingly growing a third, overlapping ear, can Plantronics' (PLT) business be really this bad?
Position in PLT, WFMI, gold
Fear factor - Adam Wanrner - 11:26 AM
Volatility is way off the June highs, true?
Yes and no. It is considerably lower, if you look at the VIX. But "under the hood," maybe not.
Check out this graph of IWM volatility. This uses ivolatility.com's normalized 30 day volatility, and basically reflects where the at-the-money near month(s) is trading. And as you can see, we are very close to the *extremes* of June, which themselves were a 2 1/2 year high.
The issue is that the VIX overweights out-of-the-money options, and this does not accurately reflect where the more active options change hands, which is a virtue in that the VIX gives a window into cheapo put demand. And right now, that demand is not near June levels.
Position in IWM
Hypnotized - John Succo - 9:35 AM
I read some bullish comments yesterday. Typical.
The reasoning was expected, the usual anecdotal references typical of a bull market: "the market is oversold," "geopolitical upheavals are short lived and don't affect economies long term," "stocks are cheap," etc...
But what if we are not in a bull market? My experience is that bear markets do not act the same. Stocks can get very very cheap (more than you could ever imagine) as investors reduce risk. Stocks don't get "oversold" (what is that anyway?); they just keep going down.
Citi (C) showed us yesterday, after they missed "expectations" for the third time in a row, that margins are gettin' squeezed at banks (even C, which has the best cost structure of any bank) as the yield curve flattens/inverts, housing slows (wait until defaults pick up) and loan demand wanes.
And now this morning a "tell": Target (TGT) lowers its forcast. TGT is that low end consumer discretionary stock that we have been looking at hard to tell us when the consumer is rolling over. You will see it first in stocks like this (HD, LOW, even DIS as well; take a look at those).
70% of the U.S. GDP is driven by consumer spending.
Position in TGT, HD, LOW, DIS
What you need to know... - Jon Doctor J Najarian - 8:20 AM
Virgin Collects $15.6 Million Deposits For Space Flights - Virgin Group, owned by billionaire businessman and part-time daredevil Sir Richard Branson, said it was on track to launch the world's first tourist space flights in 2008 and has sold tickets to its first 150 passengers tickets for $200K apiece.
Fed Charges 11 For Online Gaming – The Feds hit the CEO of Betonsports.com and others with conspiracy, racketeering and fraud charges for taking sports bets from residents. The Justice Department is seeking the forfeiture of $4.5 billion, cars and computers from the defendants, including Betonsports PLC and three other companies.
Northwest Reaches Agreement With Attendants – A tentative labor agreement will allow the carrier to achieve its goal of $195 million in annual cost savings from the union, according to Northwest. This keeps Northwest on track to save $1.4 billion annually in labor costs.
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