12/30/11…at the end of the rainbow

Next week’s holiday shortened economic calendar is jammed packed with important indicators. The highlight of the week will be the December Employment Situation Report (Friday). We will also get the December ISM Manufacturing Survey and November Construction Spending (Tuesday), the December ADP National Employment Report, November Factory Orders, and December Motor Vehicle Sales (Wednesday), and the December ISM Non-Manufacturing Survey (Thursday). In addition, the Federal Reserve will release the minutes to the December 13th FOMC meeting (Tuesday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA


Bloomberg Top Stories:

*Exchange Mergers in Limbo as $35 Billion in Takeover Bids Fail to Complete

*Euro Weakens as French Bonds Decline; Most European Stocks, Copper Advance

*Commodities Poised for First Annual Decline Since 2008 on European Crisis – including gold!

*Hungary’s Bailout Chance Wanes as Lawmakers Snub IMF, EU Over Central Bank

*U.K. House Prices May Decline Next Year as Unemployment Increases – it can’t happen here!

*VIX 28% Gain in 2011 Approaches Europe as S&P 500 Erases 13% Drop

*Spanish Drugmakers See Austerity Reducing Sales 15% as Rajoy Readies Cuts

*Best-Performing Market Challenged by Banking Curbs Next Year – that would be Muni’s!

*Hospice Turns Months-to-Live Patient With Drug Habit Into Years of Profit – SICK!

*Romney Intensifying Effort in Iowa as He Seeks Republican Caucus Victory

*Gingrich Signals Attack on Leader Romney as Contest Moves to New Hampshire


Volume was steady at 2.26B shares from 2.33B shares, very weak, in a session that reversed much of Wednesday’s losses…or was it a dead cat bounce? Once again the activity is all high frequency traders and is exactly why you cannot play this market. NYSE stocks executed on the Big Board were also stead at a still weak 531M shares from 542m shares! 31 of the last 34 sessions have been less than 1B! Advance/Declines were positive but did not counter Wednesday’s declines: +3.7:1 vs -4:1 vs +1.1:1 vs +2.2:1 vs +3:1 vs  +1.7:1 vs +7.5:1 vs -4:1 vs +1.7:1 on NYSE and +2.6:1 vs -4:1 vs -1.1:1 vs +1.1:1 vs +2:1 vs 1:1 vs +4.7:1 vs -4:1 vs +1.3:1 on Nasdaq. Breadth was only half the declines: +10.2x vs -22x vs -1.5x vs +3.4x vs +4.5x vs +1.4x vs +35x!!! vs -3.1x vs +1.9x on NYSE and +5.2x vs -9x vs +1.2x vs +2.2x vs +3.6x vs -1.6x vs +11x!!! vs -5x vs +1.4x on Nasdaq. New 52 week highs held at 161 from 163 while new lows were slightly lower at 135 from 143.The ratio has dropped from 6x positive to 1.1x positive! The S&P VIX declined after rising for two straight days, also about half of Wednesday’s rise to 22.65 -.87. CAUTION advised!!!

Here are the results of the past NINE sessions: Dow +1.1% vs -1.1% vs flat vs +1% vs +0.5% vs flat vs +2.9% vs -0.8% vs flat; Transports +1.4% vs -1.6% vs flat vs +0.5% vs +0.9% vs +0.6% vs +3.4% vs -2.3% vs +1.5%; S&P 500 +1.1% vs -1.3% vs flat vs +0.9% vs +0.8% vs +0.2% vs +3% vs -0.8% vs +0.3%; Nasdaq Composite +0.9% vs -1.3% vs +0.3% vs +0.7% vs +0.8% vs -1% vs +3.2% vs -1.2% vs +0.6%; Nasdaq 100 +0.8% vs -1.1% vs +0.2% vs +0.9% vs +0.8% vs -1% vs +1.4% vs +3% vs -1% vs +0.5%; Russell 2000 +1.3% vs -2.1% vs +0.5% vs +0.3% vs +0.7% vs +0.3% vs +4.2% vs -1.9% vs +0.8%; NYSE Financials +1.5% vs -1.7% vs -0.6% vs +0.7% vs +1.8%!!! vs +0.3% vs +3.7% vs -1.9% vs +0.4%  Leaders: BAC +3.3% vs -3.6% vs -2.1%; C +2.4% vs -2.9% vs -2%; GE +1.4% vs -1.1% vs -1.2%. Note Nasdaq and Russell still lagging!


European equity slightly better, Asia up after losing for two straight sessions: FTSE +0.1% vs +0.2% vs +0.8% vs closed vs +1% vs +1.1% vs -0.4% vs -0.3% vs -0.1%; CAC40 -0.1% vs +0.1% vs +0.5% vs +0.2% vs +0.6% vs +1.5% vs -0.4% vs +0.8% vs +1%; DAX +0.9% vs +0.3% vs flat vs flat vs +0.3% vs +1.2% vs -0.1% vs +0.8% vs +0.8%; -0.5% vs Nikkei +0.7% vs -0.3% vs -0.2% vs closed vs -0.8% vs +1.5% vs +0.5% vs -1.3%; Hang Seng +0.2% vs -0.7% vs -0.6% vs closed vs +1.4% vs -0.2% vs +1.9% vs +0.1% vs -1.2%; Korean KOSPI closed vs flat vs -0.9% vs -0.8% vs +1.1% vs -0.1% vs +3.1% vs +0.9% vs -3.4%; Indian Sensex -0.6% vs -1.2%!!! vs -0.9% vs +0.6% vs -0.5% vs +0.8% vs +3.4% vs -1.3% vs -0.7%. U.S. stock futures little changed: DOW FLAT; SPX +1; NDQ -1. Bonds up slightly with 10’s and 30’s safely below 2% and 3% respectively. 10 yr 1.88% +5/32. RECORD low 9/23 of 1.6855%; 30 yr 2.89% +1/4; Long TIP 0.73% +9/16. 0.57% at high five weeks ago. The 5 yr TIP yields MINUS 0.89%!!!; 10 yr -0.15%!!!. 3 mo. Libor 0.58%, and 0.81%. Bills -0.01% one month. 3 months 0.02%. 6 months 0.06%.

Gold continued to plunge and has lost $77.50 in the last six straight sessions, is well below $1600 and the 200 day since 12/19. It closed at $1540.90 -$23.20!!! but is now $1564.50. UP $23.60! The record high is $1923.70, a buying climax on 9/6. RES is 1698, the 40 day and $1687, the 50 day m/a and $1625, the 200 day. Crude closed modestly higher but below $100 reversing Tuesday’s  surge to $101.34 but is still well above the 50/200 day ($96.51-95.70) closing $99.65 +.29. Tuesday was the first close above $100 since 12/13 and highest since 11/16! It is now $99.10 -.55. High has been above $100 5 of last 6 sessions. Major sup is the 40/50 day m/a at $97.99-96.51. Res at $100.



…you’ll find a pot of gold…at the end of the year, you never know what you will encounter, and then of course there is January – with or without the ‘effect.’  Right now the returns for the entire year are at stake, it all depends on how today goes but it won’t be a good year. Note that the Dow is the best performer and that is likely due to the number of dividend payers in the index. This could be why the Nasdaq is not in the lead as it was last year. At the other end of the spectrum is the growth oriented Russell 2000 small cap, and of course bank stocks. Here are ytd returns as of yesterday just vs. Tuesday…talk about difficult markets!

12/29                12/28

DOW                +6.1%               +5.0%

Transports         -1.3%               -2.6%

S&P 500           +0.4%               -0.6%

Nasdaq Comp    -1.5%               -2.4%

Nasdaq 100       +3.0%               +2.2%

Russell 2000     -4.9%               -6.2%

NYSE Finance –17.9%               -19.1%


Given the risk and massive swings in performance, money market yields don’t look all bad.


Even muni’s are toppy…consider the premiums so unless you just look at the yield from when you bought them a few years ago, a lot of gain is on paper…and if the price declines due to an improving economy or worse, due to credit concerns…and there are many…there could be a big erosion of value…sometimes there are things worse than paying capital gains. By the way, if you look at some of the premiums on older government bonds they are in the same boat and with even less yield protection. There are several treasury bonds trading with 50 point premiums. Last time we saw this was following Volcker’s destruction of inflation in 1982…can you spell RISK?


Will Gold continue to hold at $1500? Or will it take $1400 or even $1320 before the selling is stopped? With all the problems in the world it seems unlikely that we will see a typical plunge in prices – at least from here…could we see $1900 again? You betcha!


. . .   – – –  . . . note that the same old SOS applies…perhaps more so!

TB went with his son to see the Minnesota Wild play hockey against the Edmonton Oilers last night…along with 19,000 others. It is hard to believe there is a weak economy, when two Bud Lights cost $17…but hey in those fancy aluminum bottles! The best news is that the Wild was coming off an 8 game losing streak, following a 7 game winning streak. They broke the curse last night winning by 4-3 in a great game…they were better at getting the puck out of there!


We just learned that more purchases were done with plastic than cash this year…is that a good thing? More confident or just don’t want to ruin the kids Christmas…we will find out over the next few months.


Have a wonderful New Years!




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