8/24/11…there’s a reason they are called ‘doubtful’

Bloomberg Top Stories:

 

*Orders for Durable Goods in U.S. Increase 4%, Twice as Much as Estimated

*U.S. Stock Futures Pare Losses as Order Data Signal Recovery Strengthening

*U.S. Banks Facing Main Street Squeeze as Economy Saps Earnings

*Japan Unveils $100 Billion to Fight Surging Yen as Moody’s Lowers Rating

*German Business Confidence Index Drops to Lowest Level in More Than a Year

*European Bank Job Cuts Exceed 40,000 as UBS Eliminates 5% of Its Workforce

*Greek Two-Year Note Yield Rises to 42.03%, Highest Since Euro Introduction

*McGraw-Hill Seen Returning 40% More in Pieces Than Current Value

*Regulators Lack Data to Evaluate Derivatives’ Threat to Financial System

*Oil’s Drop to Be Muted as Libya Struggles to Start Exports

*Russell 2000 Draws Closer Than Ever to S&P 500’s Swings – small caps rule?

*Fed Made State Street Profitable Go-To Bank as Money-Fund Middlemen in ‘08\

*Irene Becomes Major Hurricane Over Bahamas on Track Toward North Carolina

*Qaddafi Vows Martyrdom or Victory as Libyan Opposition Intensifies Search

*New York City, East Coast Remain at Risk of Further Aftershocks for Weeks

 

Volume was higher at 5.19B shares vs 4.76B shares, with the difference being the East Coast earthquake. Still Big Board volume was only steady at 1.24B vs 1.2B shares, making three days near lows since 8/1! Stil this generated the first ‘real’ rally but from such a low level as to be insignificant. Advance/Declines ran +5.5:1 vs -1.2:1 on NYSE and +4.8:1 vs -1.2:1 on Nasdaq while Breadth was +4.4x vs -1.2x on NYSE and +6.2x vs -1.3x on Nasdaq. New 52 week highs were steady at 23, incredibly low, while new lows dipped further to a still high 335 from 517, the high was 616 on Friday! The VIX has had two lower highs and lower lows but was barely down until the quake hit – felt on the NYSE – and closed at 36.27 down a big 6.17…is it sustainable? Probably not. 48 was the selloff high, not seen since 5/21/10: 48.20!

 

Stocks advanced all session in a choppy manner then got a big lift into the close  following the quake. Dow +3% vs +0.3% vs -1.6% vs -3.7%; Transports +3.3% vs +0.1% vs -1.8% vs -6.3%; S&P 500 +3.4% vs flat vs -1.5% vs -4.5%; Nasdaq Comp +4.3% vs +0.2% vs -1.6% vs -5.2%; 100 +4.1% vs +0.3% vs -1.7% vs -5.0%; Russell 2000 +4.9% vs -0.1% vs -1.6% vs -5.9%. Note that the net effect remains DOWN! The good news is that thanks to Durable Goods Orders the week will likely be up UNLESS the lack of a QE3 announcement, which is doubtful, on Friday dampens the bulls spirits.

 

Overnight European equities are rallying for a third straight session, but Asia is weak. FTSE +0.8% vs +0.5% vs +2.3% vs -1.5% vs -2.7%; CAC 40 +1.3% vs +1% vs +2.3% vs -1.6% vs -3%; DAX +2.4% vs +07% vs +1.3% vs -2.7% vs -3.8%!!!; Nikkei -1.1% vs +1.2% vs -1% vs -2.5% vs -1.3%; Hang Seng -2.1% vs +2% vs +0.5% vs -3.1% vs -1.3%; Korean KOSPI -1.2% vs +3.9% vs -2% vs -6.2%!!! vs -1.7%; Indian Sensex -1.3% vs +1% vs +1.2% vs -2% vs -2.2%. U.S. futures are down slightly but look at current vs overnight lows: DOW -7 vs -137; SPX -1.50 vs -16; NDQ -2.25 vs -27. Gold tumbled yesterday after a big record high of $1917.90 Monday evening, yet fell $30 in the session and is now $1837.20 -$24.10. Don’t think the game is over yet though as we have seen this pattern before…Faber loves it and would love to buy below $1800. Crude is up for a third session and $7 above Friday’s low: $86.06 +.62. First resistance is at $90, then $92-95. Bonds are slightly weaker except the long bond which is 3.48% +5/16;10 yr 2.16% -3/32.

 

…Durable Goods Orders that is…wow! Up 4%…yee haw…twice the estimates…happy days are here again…stock futures rebounding from big losses as it was twice as strong as the estimates. Oh wait…there are details…with durable goods there are ALWAYS details. Ex-transportation they were up just 0.7%…non-defense capital goods shipments EX-PLANES rose just 0.2%. Non-defense capital goods ORDERS ex-aircraft FELL 1.5%. Now that is one hell of a reason for stocks to rally…especially when we consider the weakness in transportation stocks! Get a grip! Remember that Boeing’s first commercial test of the 787 Dreamliner (Nightmare?) THIS Friday…three years behind schedule! Meanwhile the company has an inventory of nearly 400 of the new planes and orders for 800 from 55 customers. Watch closely. So it is likely Boeing that distorted the data.

 

Mark Faber was interviewed on Bloomberg yesterday following the quake. He says “there is no bigger bear out there than I am” but sees a short rally that one should take advantage of to lighten up on holdings. He doesn’t see us going anywhere near the May 2 high of 1370 on the S&P 500, perhaps to 1300 (TB sees problems at 1250 without a kick thru that resistance), but thinks the bears will be disappointed as it will not go back below 1100. Of course, the wrinkle here is despite his expertise…and most of the others from traders to managers yesterday that TB heard, computers will determine if and when we go above or below those numbers.

 

TB learned something from the quake yesterday: did you know that as news is being reported on Bloomberg, and presumably CNBC, it is being converted for computers. So? So, it means that if an event happens, as yesterday’s quake, don’t even think you can win because the computers have already identified it and acted on it by the time you first see it. Add this to the list of problems with high-frequency trading.

 

Add to the existing algorithms events that might impact sectors or companies and they have even a six sigma event nailed. Earthquake + east coast = risk for nuclear power companies, insurers, banks, etc. In the five minutes following the quake 30 million shares traded on the NYSE, despite the floor shaking. Bloomberg incorrectly calculated it at 60 million but their own table corrects that but wasn’t available till afterwards. Still 30 million in 5 minutes is a lot of shares. They also said the traders probably closed out position…more likely it was

computers doing the trading untouched by human hands. At the end of the day we had a strong rally into the close but with below average volume despite it being steady after the initial reaction…in fact other than that it was steady all day. This marked three straight sessions – the first essentially flat and the last two up, on the lowest volumes since August 1! Despite this the S&P 500 is still 50 points below where it was a week ago and the Dow 290 points…the big concern is where do we go from here if Bernanke can’t produce a rabbit from his hat on Friday at Jackson Hole? Some say his bag if empty. One trader went so far as to say he has fired all his bullets and all he can do know is throw his gun at it!

 

Regarding Bank of America, it isn’t in trouble…no more than Continental Illinois (the bank, not the holding company) was. Thanks to the Gipper this event gave us ‘too big to fail’ and you can bet your bippy that no matter what happens as members in good standing (sic) of Club Fed, they will be taken care of along with their depositors…not so sure about bondholders this time, they might be asked to bear some of the pain…although TB sees risk of a collapse as highly improbable. But do you want to own the stock? Consider selling it for the 8.30% preferred which are recently at April traded at $26.80, plunged to $17.72 (one trade…you cannot trade preferreds like common stock…you have to have limits…or pay for it!)

The series H preferred is now trading at $21.40 for a yield of 9.58%. TB did this in 2008, swapping out of GE common for the 5.20% at identical prices. This is NOT a recommendation, but something that might be considered if you are stuck with that falling dog. As TB has frequently said: the ONLY reason to hold a bank stock for investment is for the DIVIDEND, and most, especially BofA’s 1 cent, are sorely lacking. The only other reason to buy is speculation…are you a savvy speculator?

 

. . .  – – –  . . .    . . .  – – –  . . .

 

Anyone from California or Japan…or New Madrid, Mo., had to be laughing at the comments from New Yorkers and other easterners about the quake. It was just 5.9, in a rural area, but due to the depth – just 3.4 miles – it was felt over a much wider area than California’s which run 6-10 miles and are in ‘hotter’ rock. People left buildings and were seen standing outside for hours…if this happened elsewhere nothing would get done. Here were some more things:

*No tsunami warning was issued…hello…it has to be under the sea to create a tsunami!

*Nuclear plants were shut down and tested…of course but the risk was nearly nil

*Risk of aftershocks will remain for weeks…well of course but with no damage!

 

On the evening news they shot a picture of a collapsed building a hundred or so miles away…either it was already falling down…as it appeared…or someone knocked it down for insurance.

 

Hey, at least it was something to talk about rather than economies or crises getting better or worse.

 

Enjoy your day!

 

TB

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