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Buzz Bits: Dow, Nasdaq Close In the Green


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Editor's Note: This is a small sample of the content available on the Buzz and Banter.

Catch the wind, see us spin, sail away, leave today, way up high in the sky.... - Todd Harrison - 2:58 PM

I hear ya Hoofy--it's been a banner week for the bovine bunch. And barring an eye-popping reversal of fortune into the close, you're looking at your best week in months. Not bad, considering the geopoltical backdrop and high profile snafus that have littered the recent landscape.

The Matador Crowd believes that the current spate of Debbie Downers was already reflected in the price action (of May and June). Boo, on the other paw, will offer that we've simply seen the first of many downticks in a multitude of metrics. They may both be right (as a function of time horizon) so I encourage you to keep your eyes open and thoughts lucid. In sixty-six short hours, you'll awake with the risk profile you dictate into today's close.

I'm not sure how much more value I can add given my current state of health. I've been trying to put my game face on today but, truth be told, I'm not feeling so hot. I'm hopeful that spending sixty of those aforementioned hours in bed with soup will help as I'm determined to beat this bug. I have no choice--one week from today, I'll be on my way to Vail to prep for thy arrival. And what a party it'll be.

Fare ye well into the bell, my friends, and have a most excellent weekend.


I just got this e-mail and had to share it with you...... - Bennet Sedacca - 2:12 PM

It was from a well-known publication (can't mention the name) and it was titled 'Economic Activity Stalled Suddenly.'

Well, all I can say is that I was born at night, but not LAST NIGHT. What is so sudden about this? We have had an inverted curve, an over indebted consumer, poorly acting economically sensitive stocks (as we have mentioned here more times than I probably should have) in nearly every sector.

Now here comes the tough part. Is this good news or bad news? the last two times the Fed stopped easing, as I suggested yesterday that they were done, then market rose. Credit market debt to GDP was not 320% to GDP then, best I can tell. In fact about 70% of the time, the Fed eases soon after they overshoot, and the market begins after the SECOND RATE CUT.

I truly don't know what others will do with their money, I can only act for myself and clients. My firm finds this as the beginning of the slowdown, and while we thought there would be celebration on softening, we are not buying into it. I will bet, with my treasuries and under-exposure to equities, that history will repeat itself as it has the majority of the last century. With a downward move that end around the second cut.

It is a tough decision, but one I have to make. Not advice, just our position.

Position in Treasuries

Exchanges Trading Punk - Brian Gilmartin - 1:22 PM

CME, NYX, NDAQ, BOT, etc., all of which look to have reported great earnings results on strong volume growth continue to trade in a punk manner.

My firm's two holdings, CME and NDAQ had very good results, both beating on revenues and eps which were revised higher during the quarter, (we have since added a little more NDAQ) and yet the stocks have languished.

The exchanges are (or were) a leadership group up until the May peak, like the Trannies, the metals, and the brokers. It is just an observation, but I'd feel better about the market in general if the exchanges followed the brokers given the dynamic between the two.

CME needs to regain $463 and NDAQ should regain the $32 level to have tecnicals support the fundamentals.

Position in CME, NDAQ, brokers

Short Interest - Jason Goepfert - 11:03 AM

Last year, regulators approved a measure to extend the reporting of short interest to all stocks that trade over-the-counter, including those that trade on the so-called Pink Sheets.

These are (usually) low-priced stocks that are often of dubious quality. I've written before about how tracking the volume in these stocks can alert us to times of speculative extremes, and this short interest data should go a ways to improving that. Unfortunately, because it is new data, we don't have any history. This will severely limit our ability to interpret much meaning from these numbers for a few years.

Just taking a stab at this first release shows that the average short interest ratio for these stocks was 83 this past month - meaning it would take 83 days of average volume to cover all the short positions. This compares to the current readings of 5.7 for the NYSE and 3.9 for the Nasdaq (figures will vary depending on method of volume calculation).

I wouldn't get too carried away with the idea that a ratio of 83 is showing excessive pessimism. Not only do we not have any history from which to determine if it is high or low, but also the variation among stocks is huge. Just as an example, seven of the stocks have a ratio over 10,000 (meaning it would take over 40 years just to cover all the short positions!). Clearly some kind of filter is needed to make sense of these numbers, and over time we will be able to do that and compare them to previous readings.

It should prove to be useful once we have more data.

Gushing Profits - Adam Michael - 10:32 AM

Each time one of the large integrated oil companies reports quarterly earnings, the media gives some politician in favor of a windfall tax a chance to discuss why these companies are making too much money at the expense of the consumer. Yesterday it was Exxon (XOM), today the focus is on Chevron (CVX).

Let's forget whether a windfall tax is right or wrong for a moment and look at how the rest of the world would view an additional tax by the United States on oil that is produced in large part by the rest of the world. (By my calculations, less than 20% of Exxon's oil and natural gas production comes from the United States.)

I imagine politicians in many oil producing counties (think Nigeria, Venezuela, Ecuador, Russia) would also like to improve the lives of their citizens with a bigger piece of the oil profit pie. If the United States Congress declares open season on oil profits, why wouldn't foreign politicians from oil-exporting countries "help" the United States reduce these "obscene" profits with increased taxes of their own? Trust me, they will.

The market is stupid! - Vitaliy Katsenelson - 10:24 AM

Merck (MRK) is setting multi year highs as investors are excited about its revenue growth. However, I found the market to be stupid in the past, at least when it comes to the drug stocks.

The market ignored Schering Plough's (SGP) Claritin expiration in early 2000, which at the time accounted for about a 1/3 of the company's sales until the fat lady sang and the patent expired and the stock collapsed. Merck's boost in sales is likely to be a short lived phenomena, as Zocor, a drug that accounts for a lion share of Merck's profitability, has come off the patent in the US as of June 30. Note, that did not impact second quarter numbers. In fact as I have been told, it has helped its sales in the second quarter as anticipation of Zocor turning generic had many companies putting it on its formulary. Investors may find themselves surprised over next several quarters as Zocor sales gradually disappear.

DOW Blow-Up - John Succo - 9:22 AM

Our good friend Minyan Ron reminds us how the CEO of DOW was on financial TV last month telling the world how great things were and how positive he was on the company.

Yesterday the stock blew up.

We never listen to what people say. We don't listen to Ben Bernanke. No one can tell you anything about the future. You can have an understanding of the state of things, but not how people will react to that state. Trends are uncertain and even CEOs can't tell you much about them. Trends in products that have wide profit margins (insurance) can change overnight; trends on products with small profit margins (toothpaste) are more stable, but the companies are more levered.

We only listen to numbers. The sooner people understand this the sooner they will stop losing money trading stocks. Everyone has an agenda. Numbers do not: people can make the presentation of numbers false, but they cannot make the numbers themselves lie.

So the next time any media says something, take it with a grain of salt. Before you invest your hard earned money, look at the numbers.

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