9/28/11…about that rally

Bloomberg Top Stories:

 

*Euro Crisis Makes Fed Lender of Last Resort as Banks Chase Dollar Funding

*Stocks, Commodities Drop on Greece Bailout Concern; U.S. Futures Fluctuate???

*Deflation Worries Stalk European Central Bank Policy Outlook

*Merkel Indicates Greek Debt Review May Mean More Talks on Second Bailout

*Basel Regulators Are Said to Keep Capital-Surcharge Plans for Big Banks

*GM’s Facebook Moment Brings U-Turn on OnStar After Privacy Concerns

*Canadian Corporate Debt Sales May Rebound After Drop to Two-Year Low

*Plunging Korean Won, Brazilian Real Fuel Concerns Inflation Will Quicken

*Felon Forecaster Blogs on 8.6 Year Economic Cycles After 11 Years in Jail

(That would be Martin Armstrong who cheated investors and hid $11M in assets)

*Dudley Proving This is Not Your Father’s Federal Reserve Bank of New York

*Papandreou Wins Vote on Greek Property Tax Needed to Secure Bailout Funds

*Christie Says He Is Not Running for President as He Slams ‘Bystander’ Obama

 

Volume rose slightly to 4.9B shares from 4.54B shares, still a far cry from 6.95B shares in Thursday’s rout. For NYSE stocks while trades executed on the Big Board rose even less to 1.2B from 1.16B shares – deserving of a rally of that size? Note that the last three days were up on average volume while the big volume days are almost always down and down large! Advance/Declines were positive again: +4.4:1 vs +2.7:1 vs +1.8:1 vs -7x!!! on NYSE and +3:1 vs +1.9:1 vs +2.2:1 vs -6x!!! on Nasdaq. Breadth was similar: +3.1x vs +8x vs +2x vs -22x!!! vs -19x!!! on NYSE and +3.8x vs +2.2x vs +5x vs -12x!!! vs -4x on Nasdaq, still NET NEGATIVE. New 52 week highs nearly doubled to 38 from 20, but remain weak while new lows plunged to 119 from an incredible 499, the hihh on Thursday was 1499!!! This level has only been seen a few times…think 1987 and 2008 – the ratio is now -2.5:1 but still negative so little value there. The VIX continued to fall following Monday’s ‘key reversal’ (higher high, lower low and close below prior day’s low), and closed at 37.71 -1.31, having surged to 43.58 last Thursday. A gap remains below from 39.02-37.32 – watch closely! 48 was the selloff high, not seen since 5/21/10: 48.20!

 

Here are the returns for the day/month/quarter/ytd: Dow +1.3%/-3.6%/-9.9%/-3.3%; Transports +1.6%/-6.1%/-19.2%/-14.2%; S&P 500 +1.1%/-3.6%/-11.0%/-6.5%; Nasdaq Composite +1.2%/-6.2%/-8.2%/-4.0%; 100 +0.9%/+0.6%/-3.1%/+1.6%; Russell 2000 +2.2%/-6.4%/-17.8%/-13.2%; NYSE Financials +0.5%/-8.2%/-20.1%/-20.5% – note that the NDQ 100 is only one in the black BUT for mtd and ytd only. Reminds TB of an accountant at a firm that was bleeding money.

 

European stocks are little changed and mixed: FTSE -0.2% vs +3.1%!!! vs +0.8% vs -1.9% vs -4.5%; CAC 40 +0.1% vs +4.2%!!! vs +2.3% vs -2.7% vs -4.9%; DAX +0.1% vs +4.1%!!! vs +2.9% vs -3.1% vs -4.3%; Nikkei +0.1% vs +2.9% vs -2.2% vs closed vs -2.1%; Hang Seng -0.7% vs +4.2%!!! vs -1.5% vs -1.4% vs -4.9%; Korean KOSPI -0.7% vs +5%!!! vs -2.6% vs -5.7%!!! vs -2.9%; Indian Sensex -0.5% vs +3% vs -0.7%-1.2% vs -4.1%. Two things: first, they are all still NET down for past five sessions, and second, beware of quarterend window dressing! U.S. futures plunged early but are now up for the session: DOW +84; SPX +9; NDQ +13. 10 yr 1.98% -1/16 after a RECORD low Friday of 1.6855%; 30 yr back above 3% from a low of 2.748%, 3.07% -1/8

 

Gold closed back above $1600 yesterday ($1652.50) following Monday’s low of $1534, lowest since 7/6!) and is slightly higher overnight, $1661.90 +9.40. Did we put in a bottom? Monday’s low was nearly to the 200 day, $1527.20. We negated the spike to $1923.70, a buying climax on 9/6. Crude rallied yesterday’s after putting in a low of $77.11 Monday, lowest since the reversal from $75.71 on 8/9, also negating that rally! It is now $84.34 -.11.

 

…TB warned you about yesterday being the last day for T+3 settlement for quarter end which only affects hedge funds – directly but can have a significant impact on the overall market. The rest of us have to wait until Friday’s close.

So what happened yesterday? The market opened, following an overnight session that took global equity markets up 2-4% and U.S. stock futures with it. Look at the Dow and S&P sessions:          Open         High      Low     Close    40 day m/a      50 day m/a

Dow                         11045      11369     11045   11090     11249               11489

S&P 500                    1163         1195      1163     1175       1180                 1208

–        note that the low was 6 mins before close! Also note that the highs took out the 40 day but failed to come close to the 50 day, and worse, FAILED, closing well below. The Dow was up 446 points at the high and the S&P +32. You better beware!

This is a bear market rally, or correction), only caused by quarterend and Buffett, and yes we remain in a secular bear market and will likely be in one for years. The recovery form the March 2009 lows ended on May2, followed by two lower high and lower lows…it seems natural that the Dow will test 10000, and the S&P, 1100 again – we have a triple bottom there, if so support lies at 1040 and 1010 (critical). Note also that the 50% retracement of the rally from the March 2009 lows rests at 1121, and the 61.8% (2nd Fib retrace) is 1014. Note these are on the cash market while the futures are slightly higher…and more closely watched by technicians (1126/1017).

TB is reading two books, Rheinhart and Rogar’s It’s Different This Time (a tongue-in- cheek title), and John Mauldin’s The Endgame, which borrows heavily from the first book. What is interesting is the solution that is obvious is, as the Tea Party says, the budget deficit is too large. The comparisons of the U.S. to Greece, or even Europe and especially Japan which have enormous aging problems, are however not warranted.

We could solve our problems but that can only be done by working together but which the Tea Party has convinced the rest of the GOP is not a good thing. No, they want it all. They are opposed to raising taxes (revenues), even by changing the classification of hedge fund operators  ‘carried interest’ which is nothing more than deferred compensation and should be taxed as ordinary income, not at the absurd 15%. Nor do they even want to suspend the ‘bad’ subsidies. No, they want to cut government spending drastically even though we are heading back into recession (as for jobs, we never left it), further impacting those who have been hurt the most. That is a recipe for disaster. Why?

Because as government spending is cut (never mind that it was the GOP under George W. Bush that created the deficit, most of it coming from the tax cuts followed by Medicare Part D which was not funded), more government employees are laid off, payments to states and other programs are also reduced, further adding to unemployment and education and infrastructure will be hurt the most.

No, the solution has to be gradual instead of the ‘knee-jerk’ ones that have been put forth. TB is totally afraid of what will come out of the supercommittee and that it will be rejected by the Tea Party and if that happens folks we will be headed for oblivion.

The only answer is to grow the economy…which increases revenues which along with budget cuts, tax and benefits reform, could put us on the right path. The other alternative is for the Fed to monetize the debt…some say they already are which will…not may…result in inflation and likely hyperinflation…think Germany after WWI. This gave rise to Nazism and led to a global war which then corrected things. Do you think that is a viable alternative? Hopefully not.

We already have a record wealth gap in this country between the top 5% and the bottom 90% who have seen wages stagnate for three decades now…that is supply side economics in action. But we are not a dictatorship. Like Germany, our government can be overturned, bloodlessly and we had better see who the majority is. Ah, senior citizens who always vote will save us…will they? When their living standard declines due to their stock investments, bond yields and benefit cuts? Think about it an you decide.

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

You have to love this one: King Abdullah of Saudi Arabia just allowed women to participate in elections effective in 2015. Two days later two women were sentenced to TEN lashes for driving a car! See, it is illegal for a woman to drive in Saudi Arabia…yet now they may vote, run for office, but not drive themselves to work…in fact, they can’t even get a job, travel, or get an education without male approval.  How is that for human rights?

 

As the old saying goes “you’ve come a long way baby…but oh, you have such a long way to go.

 

Yesterday, TB heard on NPR from Radio Afghanistan women talking on rights, etc. They said that women were educated prior to the Russian invasion and that there was no discrimination on hiring. In fact, numbers were assigned and school applications that did not provide names or gender. That is what equal opportunity should be, not quotas. They also said that Americans have not made themselves liked there (much as happened in Baghdad), could it be Halliburton importing workers and having them serve pork again? Why don’t we just admit we can’t win, which we most definitely can’t, and get out, thereby reducing the budget deficit.

 

Have a great day!

 

TB

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