7/31/12…the new energy ‘drink’

From Keep Calm and Carry On: “I’m an optimist. It doesn’t seem too much use to be anything else.” – Winston Churchill …wait, what about a Rotarian? Lion?

Bloomberg Top Stories:

*Consumer Spending in U.S. Unchanged in June as Income Gains Go to Savings (that is the right thing to do but it slows growth, by the way Texas mfg fell to lowest in a year!)

*UBS Profit Falls More-than-Estimated 58% on Loss From Facebook Sale – oyvey! (for its part, FB closed at a new low of $23.15 (-31% from IPO pricing, 48.6% from high!)

*Stocks in Europe Drop as U.S. Futures Advance; Corn Rises to Record High!!!

*Fed Seen Foregoing Asset Purchases Until $600 Billion September Bond Buying (not to mention their propensity to not influence the elections – unless dire! Think about that!

*Deutsche Bank to Eliminate 1,900 Jobs as Part of $3.7B Savings Plan (already bond traders compensation has been slashed on WS…is it now going to be their recession?)

*Euro-Area Unemployment Rises to Record as Crisis Prompts Job Cuts – will it spread?

*Valero Energy Plans to Pursue Separation of Its Retail Gasoline Business

*Most U.S. Sales Since 2007 Overshadowed by GM Unsold Truck Inventory – ouch!

*Coach Tumbles as Sales Miss Estimates Amid Slower Growth in North America – wait! Haven’t we heard that retail is still alive and well? A shot across the bow?

*India’s Second Power Grid Crash in Two Days Blacks Out Half of Population!!!

*House Republicans Outraising Rivals While Improving Odds to Hold Majority

Two straight ‘up’ days and tell it goodbye! …not that it was down big but it was just as it needed momentum to continue…in July? Volume plunged back to 3.2B shares vs 4.28B! The range since 7/29’s Since the QE surge of 4.56B (above average) is 2.06B-4.28B shares. NYSE stocks executed without the aid of the ETN market fell back to 659M vs  913M – that is the lowest level since 7/16! Just 4 of the last 20 sessions have surpassed 800M shares. The average for 2012 is just 811M shares and since 6/29 just 737M shares, levels not seen since week ended 12/30/11! 50 of the last 81 sessions have been less than 800M shares. Since 2/29 there have been just 18 ‘average’ days (mostly down!), including 3/16’s high for 2012 of 1.65B (4.85B including ETNs) and just 16 have been above 900M – 933M is 12 month average. Since 11/1 there have been just 15, 1B share days…11 in 2012! Since 2/6 there have now been 16 sessions less than 700M shares. 163 of the last 185 sessions have been less than the 12 mo ave (88%)!

Advance/Declines were slightly negative after positives for the prior three sessions. Here are last five: -1.1x vs +5x! vs +2.7x vs +1.1x vs -2.9x on NYSE and -1.8x vs +3.3x vs +2.1x vs +1.4x vs -2.6x on Nasdaq. Breadth was mixed and weak: +1.1x vs +9x!!! vs +2.9x vs -1.1x vs -3.8x! on NYSE and -2x! vs +1.8x vs +2.9x vs +1.3x vs -3.3x! on Nasdaq. New 52 week highs fell back to 267 vs 368 (7/3’s 504 is the high), while new lows dropped to 72 vs 91 from a recent high of 229! The ratio is +3.7x +4x vs +1.6x vs -1.2x. This from the early rally highs of +14x and +20x. The S&P VIX surged 8% to 18.03 +1.33 vs 16.70. 7/15’s 20.47 was hjghest since June 15th. A week earlier it closed at 15.45, lowest since 3/26 – the low for this year!

Here are the results of last 5 sessions: Dow  FLAT vs +1.5% vs +1.7% vs +0.5% vs -0.8%; Transports -0.3% vs +2.4% vs +1.5% vs -0.4% vs -1.2%;Dow Utilities UP 0.4%! vs +1%! vs +1.8%!!! vs -0.2% vs -0.8%; S&P 500 -0.1% vs +1.9% vs +1.7% vs flat vs -0.9%; Nasdaq Composite -0.4% vs +2.2%! vs +1.4% vs +1.7% vs -0.3%; Nasdaq 100 -0.2% vs +2.4%! vs +1.4% vs -0.7% vs -0.9%; Russell 2000 -0.6% vs +2.4%! vs +1% vs +0.2% vs -1.4%; NYSE Financials -0.1% vs +2.4%! vs +2%! vs +0.4% vs -0.8% (KBW Banks -0.8%!+1.5% vs +1.7% vs +0.4% vs flat vs -0.9%; Nasdaq Banks -0.7% vs +1.5% vs +0.8% vs +0.3% vs -0.2% vs -1.3%!). NYSE Financial Leaders: BAC -0.4% vs +2%! vs +1.4% vs .+0.4% vs -0.7% +0.3% vs -2.6%! vs -3.6%!!! vs -4.9%!!!; GE -0.6% vs +1.8% vs +2.8%! vs +0.2% vs -0.6% vs +1.1%!; F +1.1% vs -0.1% vs +0.5% vs -1%. Not leaders, but… JPM -2%! vs +3%!!! vs +1.8% vs +1.3% vs +0.8% vs +1.4%; C -0.6% vs +3.9%! vs +1.9% vs +2.2% vs -0.4% vs -2.3%!!; WFC -0.5% vs +1.1% vs +1.9% vs +1.4% vs -0.6% vs -1.1%; USB -0.5% vs +1% vs +0.9% vs -0.5% vs +0.1% vs -0.6%; GS -0.7% vs +3.7%!!! vs +2.2%! vs +1.6% vs +1.4% vs -1.1%; MS flat vs +3.8% vs +0.3% vs +2.7% vs -0.2% vs -1.1% vs -3.2% vs -5.3%! Note the delinking of NYSE Financials and the two bank indices…a first!

Global stocks continuing to rally – except UK: FTSE -0.3% vs +0.6% vs n/a vs +0.2% vs -0.1%; CAC 40 flat vs +0.6% vs n/a vs +0.7% vs -0.1% vs -2.2%!; DAX +0.3% vs +0.9% vs n/a vs +0.5% vs -0.2%;Nikkei +0.7% vs +0.8% vs n/a vs -1.4%! vs -0.2%; Hang Seng +1.1% vs +1.6% vs n/a vs -0.1% vs -0.8%; Korean KOSPI +2.1%!!! vs +0.8% vs n/a vs -1.4% vs +0.3%;Indian Sensex +0.5% vs +1.8%! vs n/a vs -0.4% vs +0.2%. U.S. stock futures higher but giving up half the overnight gain: DOW +24; SPX +2; NDQ  +7.50. Have to wait to see how that plays out.

Bonds are STRONG for a second session after being whopped the prior two sessions:10 yr 1.47% +5/16 – record low of 1.40%; 30 yr 2.55% +11/16. Long TIP 0.31%. 0.28% is record low!The 5 yr TIP yields -1.23%!!!; 10 yr -0.70%!!!Bills 0.07% 1 month; 0.11% 3 months; 0.14% 6 months. Reverse Repo 0.23%. 3 mo. Libor 0.44%!!!, and 6 mo. 0.73% – still trying to go lower! European problem sovereign 10 years, Germany-benchmark 1.31% -6 bp’s!; Italy 5.97% -3; Spain 6.52% -1; Greece 24.44% -8; Portugal 10.80% -1; Ireland 5.86% UP 3.

Gold holding above $1600 but couldn’t be more boring since breaking out three days ago following 13 days below, closing 1624.00 +$1.30. Since breaking out the biggest gain has been $7.10! 7/12’s intraday low of $1547.60 was lowest since June 1. The hit is $145 since 2/28! 2/28’s $1792.70 intraday high not seen since 11/16! The record high is $1923.70, a buying climax on 9/6. SUP is $1601, the 40 day and $1597, crossed and stable, then $1666, the 200 day. 5/2’s o/n low of $1526.70 was lowest since 12/29! Currently $1627.00 +$3.00. Crude also barely budged last three sessions closing off at $88.78 -.35. Since selling off on 7/23 the TOTAL change has been just $1.99! SUP at the 40 day (85.29), and the 50 day (85.99), RES at the 200 day (96.52), 40/50 converging. First RES/SUP is $89.17, the 11/1/11 low, then $92.52-54, the lows of 12/16-12/17, a prior double bottom.

You were warned yesterday that this was a ‘very thin rally.’ Those two days of above average volume on total NYSE trading with just one on real NYSE trades reverted to their norm of a weak 3.2B and 659M respectively – that doesn’t even pay the light bills!

While both Breadth and Advance/Declines were weak, the pain was felt in tech and small caps. The Dow was FLAT, S&P 500 -0.1% while Transports fell 0.3%, the Nasdaq Composite fell 0.4% and the Nasdaq 100 -0.2% – the latter saved by Apple which was the only real gainer and added NINE points to the index, sans AAPL it was -0.5%! Worse the Russell 2000 small cap fell by 0.6% for losing honors!

A strange thing in financials: the banks were off as measured by KBW -0.8% and Nasdaq Banks -0.7% while NYSE Financials fell by just 0.1% – we have not seen this divergence since the crisis began? Also for the first time in the same period (TB thinks), BofA was seriously displaced as the most active NYSE stock by SprintNextel (S) on a 4.6% gain due to a buy recommendation…hold on, the stock rose to $4.51 from $4.31 – the mark of high freak traders! Note that it pays NO dividend while AT&T (T) pays 4.7%, is at the high since the crisis began, and has been on a run –which TB missed – of $37.43, a gain of 28.3% from the 1/27 low which was down 3.6% from 12/30/11, as analysts panned it, and TB sold out his positions…aarrgghh. 4.7% dividend PLUS stock buybacks! Hmmm.

. . .  – – –  . . . (SOS!)  . . .   – – –  . . .  (SOS!) . . .   – – –  . . .  (SOS!) . . .   – – –  . . .  (SOS!)

…natural gas!

The conference started with an outdoor breakfast with the Jackson Hole ski slopes in the background. The Center for the Arts is a beautiful building…J.H. is becoming like Santa Fe.

The first panel was on energy, specifically natural gas with a consultant, and two principals of energy firms – natural gas and renewable energy. First, they showed how renewable growth, while good…especially wind of late…has been good but is not enough. Only the Midwest can provide useful energy year round while the Pacific Northwest has peaks and troughs in hydro and windpower that coincide, making it extremely difficult to manage.  Second, was the discussion of natural gas prospects. It is trading a huge lows and at spreads to crude that are the widest ever. They used to move in lockstep until about 2007, then crude surged (on speculation only if you recall, not real demand!). Meanwhile, Chesapeake Energy really screwed up thanks to speculation by the CEO/co-founder (TB not the panel).

The earthquake and tsunami in Japan will have a huge impact. Over 50% of their power comes from nuclear and the people want it shut down…the least cost alternative is natural gas and thanks to LNG it will likely be a major part of the solution. Besides the Williston Bakken in North Dakota, big finds in the Gulf and relaxing of bans from the BP spill, will cause permanent rigs to be built. Once anchored to the ocean floor they are considered U.S. ports. This means that all transfers to ships must be those of U.S. flag. Already in Mississippi shipbuilders are gearing up for this! That natural gas will be able to be shipped to Japan as soon as the Panama Canal widening is completed – 2014!

As to the scares about shale oil drilling (with water and chemicals) permeating the water supply, in the entire history of it which spans over thirty years there has not been one case of it. Seismic? Nil! In both cases the frac’ing (correct spelling in industry jargon), is at 6,000-9,000 feet below the surface – beneath bedrock so when properly encased it cannot reach the aquifer.

After the session TB spoke with all three panelists saying the he felt the Keystone Pipeline was purely a political move as it would dump Canadian – not U.S.- oil down in Oklahoma in what is already the ‘roach motel’ as there is too much oil there and it sells for about $2 a barrel below WTI…if you can get it out. All three said that TB was correct, that it is/was a bad idea. Hold that thought! We are in an election year!

Draw your own conclusions…TB has done his. Also, don’t confuse shale oil with oil shale, which is a dirty process. Oh, not to say the frac’ing isn’t but they have elaborate systems to recollect the waste chemicals and remove them safely.

Tomorrow: Federal Reserve Policy panel

Have a prosperous day!

TB

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