2/25/13….markets and austerity – like oil and water

From the Friars Club Encyclopedia of Jokes: “There are several ways in which to apportion the family income, all of them unsatisfactory.” – Robert Benchley…the entire budget defined in a nutshell…and some of them are certifiably nuts!

This week’s economic calendar is packed with important indicators. The highlight of the week will be the February ISM Manufacturing Survey (Friday).

We will also get December Case-Shiller Home Prices, February Consumer Confidence, January New Home Sales and February Richmond Fed Manufacturing Survey (Tuesday), January Durable Goods Order (Wednesday), the GDP – Q4 2nd Estimate, February ISM Chicago Survey (Thursday), January Personal Income, January Construction Spending, February Consumer Sentiment and February Motor Vehicle Sales (Friday).

Courtesy of Economic Advisory Service

Bloomberg Quote of the Day: “Our favorite holding period is forever.” – Warren Buffett. Is it still the optimal way to invest?…when real investors are dinosaurs? Here is a link to the contrary from Seeking Alpha, a reliable source: Market Analysis over the year

Bloomberg Top Stories:

 

*Yen Weakens to the Lowest Level Since 2010 as Stocks, S&P Futures Advance

*Italian Bonds Rise on Bets Vote Winners Will Maintain Budgetary Austerity

*Biggest Leveraged Buyout Failure Become Energy Future Purgatory for KKR

*Pimco Joins Invesco Finding Relative Value in TIPS Even With Dormant CPI – wrong?

*China’s Slower Manufacturing Expansion Casts Shadow Over Recovery – hello!!!

*BP’s Bill for Worst U.S. Offshore Spill Turns on How Bad Its Mistakes were – does anyone remember: drill, baby, drill…to hell with the consequences of mistakes?

*Bersani Headed for Election Win in Italy as Berlusconi Loses, Poll Shows – Good!

*White House Officials Warn States as Stalemate Means Cuts Begin this Week

*New Snowstorm in U.S. Closes Airports as It Bears Down on the Great Plains

*Senator Menendez (D-NJ) Says ‘Right-Wing Sources’ Fueling Ethics Accusations – ?

Last Friday, I discussed the possibility of an inflection point, was I wrong?

  1. Total NYSE total volume fell on Friday to 3.41B shares vs 4.26B and 4.2B shares, highest of 2013 by about 400M shares; high volume on down days, low volume on rallies!?! Real NYSE volume also dropped to 683M from 800+ for two straight sessions – both solidly down! This has not occurred since 9/13-14! Ave vol. 12 mos. 747M, ytd 705M. There have been just six 800+M shares in 2013. The last thing you want to see is high volume on market declines!
  2. after several weeks of new highs running from 200-680 (2/19), then plummeting to just 121, lowest since 12/14, they nearly doubled to a still weak 214.
  3. Advance/Declines were modestly positive at +3.1x and +2.6x vs -2.3x for the pair after having been only slightly positive throughout the rally with just one day above +3.4x, +9.7x on Jan. 2. The prior two sessions A/D’s ran -3.3x and -2.3x Ditto Breadth with a high of +10x, also on Jan. 2. Down days had not been more than -2 on either. It was positive on Friday at +4.6x and +2.6x. on NYSE and -3.6x and -2.3x on Nasdaq. Wes/Thurs. was worse: -10.6x and -3.3x on NYSE and -5.1x and -4.1x on Nasdaq. Ouch!
  4. The Nasdaq indices have relied on big gains on a few stocks while the movers have been not much more than 50% positive. NDQ 100 yesterday +14, -85! YTD, the Nasdaq is up 3.7% but the 100 just 1.9%! The other big indices are up 5-6%!
  5. NYSE Financials were down over 1% each of the last two sessions. 12 mo. high on 2/19 and off 2.5% since then. At the high it was +7.9% ytd, now just 5.1%. BofA still most active and off 6.4% in two sessions to $11.42, breaking the 40/50 day m/a’s for the lowest close this year – from $12.42 high on 2/13: -8.1%! Caution!
  6. Last but not least volatility (S&P VIX) which had back to back lows going back to 2006 – huge complacency, has risen nearly 24% in two days: 12.13 – 15.22 (with an intraday high of 16.21, highest since 12/31 – highs on 12/30-31 were 22.72 and 22.19 respectively, highest since 6/15, as Congress debated budget. It then plunged when we avoided the ‘fiscal cliff.’ Congress is still on ‘break’ and has only till 3/1 to avoid sequestration…another last second deal? This is far worse then yearend and it is even more contentious between GOP and Dems!!! An increase in VIX is associated with more puts being created than calls!!! While it fell to 14.17 -1.05 on Friday (-6.9%), it is still above the 40/50/200 day m/a.s

Four more days until the Doomsday effect kicks in!

European equity markets are strong for a second session and higher then Thursday’s  losses while Asia is weak ex-Japan: UK +0.6% vs +0.8% vs -1.6%; France +1.7% vs +2.1% vs -1.8%; Germany +2.3% vs +1.1% vs -1.8%; Japan +2.4%!!! vs +0.7% vs -1.4% vs +0.8% vs -0.3% vs +2.1% vs -1.2% vs +.5% vs -1% vs +1.9%, Hang Seng +0.2% vs -0.5% vs -1.7% vs +0.7% vs -1% vs -0.3%; Kospi DOWN 0.5% vs +0.2% vs -0.5% vs +2% vs +0.2%; India +0.1% vs flat vs -1.6% vs flat vs +0.7%. U.S. stock higher: DOW +50; SPX +6.40; NDQ +17.50. Here we go…again!

Bonds were little changed yesterday but held on to overnight highs for a second session even as stocks rebounded, but are off overnight following the breaking out of the 10 yr Treasury range of from 2.06% to 2% prior five sessions, now 1.99% vs 1.96%, and the 30 yr’s 3.23% to 3.15%, now 3.18% vs 3.16%. The long Tip is 0.60% -9/16 vs 0.59%. Libor update: 0.244% 3 mos., 0.459% 6 mos. – BOTH dropping again! Foreign bond yields mixed but lower for troubled nations Germany 1.61 +4; UK 2.14% +4; Italy 4.28% -15!!!; Spain 5.02% -11!!!; Portugal 6.14% -2; Greece 10.79% -4. Japan 0.70% -2.

Gold closed slightly lower Friday at $1572.80 -5.80, but did not approach Thursday’s low of $1554.30 – not seen since May 2012! Overnight it is $1588.70 +15.90! It is still off $120 from the peak on 1/17, $1699.90 There has been a total breakdown through the 40/50/200 day m/a’s, now major resistance $1659-1669, as well as $1600, a double bottom from 8/14-15, with critical support now at $1550 – at least that held…so far!!! From there $1526.70 is next support. Last time it was below $1500 was Sept. 2011!!! Crude also managed to move slightly higher but is still weak negating two weeks ago Monday’s key reversal. Friday it closed at $93.13 +.29, below the 40 day ($94.92), AND $93.48, the 50 day. Thursday’s session low was 92.63, lowest since Jan. 11. Overnight it is $94.19 +$1.06! with support at the 200 day, $90.47.

Some random thoughts:

I can’t believe the GOP line: hey, it was Obama who created sequestration. No one in this government can create anything and he was being held hostage (as even the GOP speaker was by the extremists who profess to be trying to fix a problem that they say has us as bad as a third-world nation – horse manure!).

The GOP loves to talk about the efficiencies of big business and failings of government. In the former, all that matters is the shareholders…or used to…now it is just senior management who runs the companies quarter to quarter. Running a country is not to maximize profits (would any company have such a huge military – just in case? Would it not lay off workers when earnings plunge?). Governments job is to step in just when business IS pulling out! Otherwise how many ‘Great Depressions’ would we have had since 1945???

But a business would not…and does not slash budgets to a point where they can’t cause an increase in REVENUE – if so they would guarantee their own failure! Yet that is exactly what the fanatics in the GOP are asking for. This in a country where the minority is rapidly becoming a majority of voters. We are following in the footsteps of France and Russia before their revolutions. When that happens the greediest of Americans will see their dreams of a duopoly vanish, but once again at the expense of the middle class. Is that what you want to see? Hopefully not.

On energy, they say leave it to the private sector. How many energy or auto companies would voluntarily spend money on conservation. Very few, except the outliers who have a social conscience and can see the consequences of inaction.

That is why the government is funding energy research. Until the government stepped in with stem cell research, how many companies were willing to spend the billions to trace the human genome? Meanwhile, the far right even tried to stop this…as they did fluoridating water. Do you honestly believe any company…especially with a CEO having an outlook of less than five years…gives a damn about global warming which is fact? It’s all about earnings…earnings now…the future be damned! I just want my money!

Jack Welch and Sandy Weill love to say that managing earnings to expectations was wrong and the financial supermarket was right but that was for then, it isn’t now! They are true poster children for greed…I want mine and I don’t care what happens to my company after I am gone!

Here are two interesting articles for you consideration on the impact of austerity and the myth of sequestration:

old-and-rich-less-help-for-you

and: krugman-sequester-of-fools%!!!

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