Traderbill's Financial Markets Weblog

TB’s Quote of the Day: “The only place where success comes before work is a dictionary.” – Vidal Sassoon (“if you don’t look good we don’t look good”) – TB would add to his quote: “…or on Wall Street sometimes.”

“If Ken Lewis were Japanese he would have done the honorable thing – seppuku” – TB

…TB used the following statement as the takeaway on the stock market summary Wednesday. It proved to be prescient. The fact that it was shows how irrationally exuberant we have become – again! What is the next bubble or will it be stocks for the third time in ten years?

Question: you have had a great nine months…are still down for the last 12 months…the market wanted desperately to go down today: are you going to come in tomorrow morning and risk your entire quarter to be macho?…with payrolls on Friday? If you said yes, you are not only not an investor OR a speculator: you are a “bet the ranch: gambler! TB

Well someone noticed yesterday afternoon that the emperor was stark naked and all hell broke loose. TB couldn’t believe it…October is the month of crashes while September is normally the worst month…so we became jubilant when September came and went without leaving any scars. Yesterday on Bloomberg their little eye-candy girl who must be trying out for CNBC and has been trying to build a bullish case for the last two days said that since September didn’t tank as expected perhaps October will do likewise. Months…seasons of the year…lunar phases…good God next we will be consulting astrologers again. You know who really believed those star charts? Bob Citron! Yep, the treasurer of Orange County…perhaps that was the mental defect he claimed he had.

TB has repeatedly warned about the sharply rising 40 and 50 day moving averages. Due to the rally leading up to quarter-end, they got left in the dust but as the market plateaued and then dropped, yesterday the Dow Transports penetrated both for a second straight session and this time closed below them! Dow Theory suggests this is bad! The other indices supported just above the 40 day or slightly below but all could take out both in just ONE session! The S&P 500 closed just 15 points above 1014.14, the 38.2% Fibonacci retracement from the lows and thus closely watched by technicians – since the S&P dropped 27 points yesterday we could not only take that out (the 40 day is 1029, 50 day 1021), but the psychologically important 1000 today or Monday at worst! Also, point and figure charts on the major indices broke out to the downside yesterday! Not good!

The horrible payrolls report (see today’s overnight summry) cannot be ignored this month as it was last time when everyone was giddy! It is alreaday taking a sharp toll and the opening will be horrible! Can we recover?

Anyway, after writing yesterday TB decided to give you the returns for year to date and 12 months on the major indices so here they are:

Index                               9 months 2009        12 months

Dow Industrials                        +10.7%            -10.3%

Dow Transports                         +7.4%            -17.0%

Dow Utilities                               +1.8%            -12.1%

S&P 500                                  +17.0%            -9.0%

Nasdaq Composite                   +34.6%            +2.6%

Nasdaq 100                             +41.9%            +9.9%

Russell 2000 Small Cap            +21.0%            -10.0%

Sectors:                                 

NYSE Financials                      +28.1%            -20.0%

  REIT’s                                   +12.8%            -30.5%

KBW Bank Stocks                   +6.5%            -34.8%

NYSE Energy                          +15.2%              -8.1%

  Oil Services                            +58.6%            -14.8%

Philly Semiconductor                +53.5%              +7.4%

Commodities:

CRB Index                               +13.0               -24.3%

Goldman Sachs Index               +32.6               -25.6% – heavy in energy

Gold                                         +14.0%            +15.4%

  Gold ETF (GLD)                    +14.3%            +16.2% – despite 40bp fees!

Crude                                       +58.3%            -29.8%           

Dollar Index (DXY)                 -5.7%                          -3.5% – that’s all???

Fixed Income:

2 yr Treasury                              +1.0%              +4.1%

5 yr Treasury                              -0.9%                          +7.3%

10 yr Treasury                            -6.4%.             +7.7%

30 yr Treasury                          -19.2%                          +7.6%

TIPETF (TIP)                            +7.0%              +5.7% (index of all TIP issues)                      

1-3 Treasury Index                     +0.8%              +3.5%

1-5 Treasury Index                     +0.9%              +5.3%

1-5 Govt/Corp Index                 +6.8%              +3.0%

1-10 Govt/Corp Index                +3.0%               +6.8% 

Money Market/Bond Yields             9/30/09            12/31/08          9/30/08

Fed Funds (Fed target)             0-0.25%          0-0.25%          2.00%

3 Month Libor                                      0.287%            1.425%            4.05%

2 yr Treasury                                        0.95%              0.77%              1.96%

5 yr Treasury                                        2.31%              1.55%              2.98%

10 yr Treasury                                      3.31%              2.21%              3.83%

30 yr Treasury                                      4.05%              2.68%              4.31%

30 yr TIP                                             2.05%              2.06%              2.56%

Inflation (30 yr – 30 yr TIP)              2.00%              0.62%              1.75%

Since there are various conclusions that can be reached from the above data – TB leaves it to you to think about and decide how you want to position yourself going forward.

While bonds appear expensive – especially the 10 year treasury, the 30 year, as indicated by the TIP spread appears to be fair value…unless you are an inflation hawk! Meanwhile the 10 year appears to be about 50 basis points too rich…since over the past several decades there has never been a period when the market did not move by at least 50 basis points 3.75-4.00% is definitely possible. You decide.

Were it not that TB is, like most people, pain-averse, he would be shouting from the rooftops that he was right! Furthermore, the elation as the market tanked was muted by the fact that virtually every stock was down and down big – reminiscent of 2008 and early 2009…hopefully that is merely dislodging of long positions and not a re-emergence of fear which could take us past the March lows.

For now watch 1014.14 on the S&P 500. If that fails to hold we are in for much more pain.

While trying to recall Hugh McColls name yesterday TB looked at the holders of BofA stock. This is updated quarterly, the latest being June 30. Look at what happened

Fund                  Owns       %      Change   

State Street        357M     4.1%     +46M

Barclays            339M      3.9%       +7M

Fidelity              316M      3.7%   +158M

Vanguard          280M      3.2%     +68M

Wells Fargo      193M      2.2%     +67M

Paulson & Co   168M      1.9%     +48M

Additionally, there were TEN more managers that purchased from 20-80 million shares. On a smaller scale they were big buyers of Wells Fargo…will they take their profits now? Now look at Citi:

Fund                  Owns       %      Change   

US Govt            7.7B      33.6%    -0-

Barclays (ETF’s) 239M      1%    -27M

Goldman Sachs  bought 30M

Northern Trust bought 11M

Citi sold 12M

JPM sold 31M

Barclays PLC sold 16M

Credit Suisse sold 23M

Fidelity sold 64M

Guess we know which way the wind is blowing…or was in the second quarter.

Mea culpa: yesterday TB said that the demise of BofA was due to Tom Clausen…wrong it was due to David Coulter due to a poor and advised against loan to D.E. Shaw (which went on to do well). While one would think Coulter would have disappeared from the scene he went to Chase as a senior executive but was dumped on the merger with JPMorgan…he continues to thrive…wish we could have that kind of staying power!

Hope you all have a great weekend!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © October 2, 2009.