8/19/13…no man is an island…nor is a country!

From The Friars Club Encyclopedia of Jokes: “Why is psycho analysis a lot quicker for men? When it’s time to go back to their childhood, men are already there.” Unattributed

Bloomberg Quote of the Day: “The best revenge is massive success.” – Frank Sinatra, the Chairman of the Board…you tell ‘em, Frank!

Bloomberg Top Stories:

*Repo Market Shrinking 35% Raises Alarm as Basel III Strains Hit Treasuries – !!!

*Emerging Markets Lead Stocks Lower as Bonds Drop With Metals; Grains Climb

*China’s Everbright Securities Gets Proprietary Trading Bank as Error Roils Market

*Brevan Howard Traders Said to Depart as Fund Posts Biggest Loss Since 2009 – !!!

*Sensex Falls 10% From High as India’s Banks Extend Worst Drop Since 2009 – !!!

*ETFs Help Spur Loan Volatility as Funds Lure $45.5 Billion – no thanks to banks!

*Detroit District Judge Set to Begin Mediating Bankruptcy Plan Next Month – oh boy!

*Banks Dump Treasuries Fastest in Decade as Yields Climb – more to come???

*Twilight of Bernanke Years shows No Sign of Buyer’s Remorse in U.S. Market

*Sinai Militants Kill 25 Police in Grenade Attack as Egypt’s Crisis Deepens – oh oh!!!

*Obama Caught in Egypt Response Between Allies From Saudi Arabia to Turkey –L

*Merkel Rebuffs Opposition Saying No One Wants a Grand Coalition in Germany

*Rohani Starts Overhauling Iran Budget Plan to Prevent Basic-Goods Shortage

Labor market trends are slowly improving with the recent drop in jobless claims. Manufacturing activity expanded at a somewhat slower pace as indicated by the EmpireState and Philadelphia Fed regional surveys. Industrial production and business inventories were unchanged while housing starts and consumer credit increased. Retail sales rose, suggesting consumer spending will continue to add positively to Q3. Inflation remains subdued.

Next week’s economic calendar is fairly light. We will get the July Existing Home Sales (Wednesday), July Leading Indicators (Thursday), and July New Home Sales (Friday).

In addition, the Federal Reserve will release the minutes to the July 30th – 31st FOMC Meeting on Wednesday. Courtesy of Economic Advisory Service

Before we start, look at the above headlines which are in BOLD. I did not edit them, they are exactly in the order Bloomberg published this morning with no deletions. Can you spot the one that doesn’t fit with the others? Hint: the stock market climbs a wall of worry (sic).

The changed belies the weakness Friday as all indices EXCEPT Dow Transports (+0.6%) declined, led by Dow Utilities (-1.1%!!!). NYSE Volume was lower at 3.14B shares from a near average 3.42B shares. Real NYSE Volume however ROSE to strong (?) 835M shares from 716M vs 588M shares (average since 6/30 is just 675M shares!). That is the first 800M share day since July 31 (904M), and what you DON’T want to see on a down session! Worse it was a Friday and from the Bloomberg stories to Barron’s it looks like trouble ahead…but then it has for two months to TB!

The Nasdaq 100 lost just 2.32 points vs -53 vs -12 with 1.5:1 declining. Only two members changed by more than one index point:  while at least TEN lost more than one point (CSCO -8.9; MSFT -4.2; GOOG -2.5; INTC -2.4; AMZN -2…you get the picture BROAD!!!), for a total of 30!!! Apple gained 3.5 index points vs +7.5 vs +18.5!?! vs +10.8!!! vs -5.5 vs -3.3). The loser was CSCO at -1.1 vs -8.9!!! Advance/Declines and Breadth were both negative for a 2nd day. New 52 week Highs rose slightly to a weak 72 vs 62 vs 229 while New Lows slipped but to a very high 431 vs 510 vs 312 vs 262 vs 104. The VIX declined slightly but remains above 14 at 14.37 -.36. It is above the 40 day (14.44) and close to the 200 day (14.72) and 50 day (14.88)…heed!!!

…here’s the book:

* Dow 30 -0.2% vs -1.5%!!! vs -0.7% vs +0.2% vs flat; Dow Transports UP 0.6% vs .1-1% vs -0.8% vs -0.7% vs +0.2%; Russell 2000 -0.3% vs -1.5% vs -0.4% vs -0.2% vs +0.5%; Dow Utilities -1.1%!!! vs -1.3%!!! vs -0.8% vs -0.5% vs -0.7%; S&P 500 -0.3% vs -1.4% vs -0.5% vs +0.3% vs -0.1%; Nasdaq Composite -0.1% vs -1.7% vs -0.4% vs +0.4% vs +0.3%; NDQ 100 -0.1% vs -1.7% vs -0.4% vs +0.5% vs +0.2% vs -0.4%.

*NYSE Volume slipped to a below average 3.14B shares vs 3.42B vs 2.88B vs 3.02B vs 2.78B vs 2.94B (2.52B is 4th weakest of 20131.96B is the low). REAL NYSE Volume rose to an above average 835M! shares vs 716M vs 588M vs 619M vs 586M vs 637M (482M on 7/3 in a shortened trading session is the low). The 12-month average is 716M shares. The range since 6/28’s 1.75B share day, excluding the three sessions above 800M, is 482M-798M shares. The average since 6/28 is just 675M shares, ranging from 482M to 906M. There have been just SEVEN 1B+ share sessions! There have been 31 800M+ shares in 2013: 12 up, 17 down, and now two mixed, but on trades of less than that 93 have been up and 41 down …the down days are beginning to steadily increase! There have been 32 mixed sessions.

*New 52 week highs have ranged from 33-864. They barely budged to a weak 72 vs 62! vs 229 vs 282 vs 223. New lows slipped but to a still very high 431 vs 510!!! vs 313!!! vs 262 vs 104 – 27 is the recent low.

  1. Advance/Declines were modestly negative: -1.9x vs -5.5x!!! vs 2.1x! vs -1.4x vs +1.1x (recent range -17.5x to +4.4x) on NYSE and -1.2x vs -4.3x!!! vs -1.4x vs 1:1 vs +1.3x (recent -3.5x to +3x). Breadth was similar: -1.9x vs -2.9x vs -1.4x vs -1.3x vs +1.1x (recent -18.6x!!! to +6.9x!!!) on NYSE and -1.1x vs -7.7x!!! vs -1.1x vs +1.1x vs +1.2x (recent -12.8x to +6.2x)  
  2. NYSE Financials were off just 0.1% a day after plunging 1.3%! vs -0.1% vs +0.3% vs -0.4%. BofA was most active rising 0.7% vs -1.3% vs +0.7% vs +0.7% vs -0.3% vs -1.1%, closing at $14.42 +.10. It has been weak since hitting $15.03 17 days ago – highest since Jan. 14 and major res. Brokers +0..3% vs -2% vs -0.3% vs +1.2% vs -0.2%; KBW Banks -0.3% vs -1.2% vs flat vs +0.3% vs -0.3%; Nasdaq Banks +0.2% vs -1.1% vs -0.2% vs flat vs +0.1%.   
  3. Volatility (S&P VIX) declined a day after surging to 14.58 +1.54!!! and closed at 14.37 -.36 with a range of 13.62-14.88 (outside day)!!! Note the recent low of 11.84, the recent range is 11.83-14.88 with 7/31’s high being 14.14!!! VIX peaked at 20.49, plunged to 18.90 on June options expiry then closed at 20.11 on 6/24 and has been down below 14 since! 6/24’s session high of 21.91 was highest since 12/31/12 (22.72)!!! The range since April ‘12 is 11.05 (multi-year low on 3/14/13) to 21.90. It is above the 40 day (14.44), near the 200 day (14.72) and the 50 day (14.88)!!!…ytd the range is 11.05 (3/14) to 21.92 (6/24)!

Global stocks weaker, ex-Japan, INDIA SLAMMED for a second day: UK -0.5% vs flat vs -1%! vs FLAT vs +0.4%; France -0.8% vs +0.1% vs -0.4% vs +0.3% vs +0.2%; Germany -0.3% vs -0.4% vs -0.7% vs +0.1% vs +0.7%; Japan UP 0.8% vs -0.8% vs -2.1%!!! vs +1.3% vs +2.6%!!! Hang Seng -0.2% vs -0.1% vs flat vs closed vs +1.2%; Korea -0.1% vs -0.2% vs closed vs +0.6% vs +1.5%! India DOWN 1.6%!!!! vs -4%!!! vs closed vs +0.7% vs +1.5%. U.S. equity markets little changed overnight in an extremely narrow trading range: DOW -7; SPX -1.60; NDQ +1.50. Looks confused!

Bonds not only closed lower on Friday as the rout continues, but all broke down yet again for the NINTH time since May 2nd when Bernanke mentioned ‘tapering’. The long TIP continues to be the biggest loser! Since the April 5th high (106.94), it has plunged to 78 – a 23% decline!!! Also look at the 30 year treasury: the range for the week was 100.44 to 95.44 – a 5% decline – in just FOUR days??? All are weaker again overnight: 10 yr Treasury 2.84% -1/8 (recent range NOW 2.91% to 1.63%!!!), and the 30 yr range NOW 2.67% to 3.87%, currently 3.82% -5/32. The long TIP is 1.53% -3/8 The (record?) low of 0.36% was set on 4/5. Overnight high yield: 1.58%! Libor update: 0.264% 3 mos, 0.395% 6 mos, steady. Both remain near the Jan. 2010 record lows (0.245% and 0.382% respectively). Foreign bond yields higher across the board ex-Portugal: Germany 1.88% +1; UK 2.71% +1; France 2.42% +3, Italy 4.26% +8; Spain 4.39% +5; Portugal 6.24% -2; Greece 9.8% +12 vs 9.45% vs 9.46% vs 9.54% twice vs 9.49% vs 9.59%. Look at some of its recent big moves: 9.64% -18; 9.81% -10; 10.02% +19; 9.95% +17; 9.86% -13; 10.02% -16; 10.27% -1; 10.33% -25!; 10.85% +28!; 10.54% +40!!!; 10.85% -37!!!. Recent range: 8.04% to 12.57%. Japan 0.76% +1.

Gold closed higher again at $1371.00 +$9.10 with a session high of $1379.20 not only highest since 6/18 but eradicating the selloff since then! Last Wednesday’s session low was $1271.80 – lowest since 7/17! 6/27’s intraday low was $1179.40 – lowest since at least 2011 and now critical support. $1300 is psychological support, and it is above both the 40 day $1292 and the 50 day $1308. The 200 day is a distant $1527!!! Overnight it is slightly higher at $1372.30 +$1.30 with a session high of $1384.10!!! Crude closed little changed at $107.46 +.13. Support remains at the 40/50 day m/a’s (103.80/102.38), both rising. The 200 day ($94.70) is distant support. Minor sup is $104.21-36 – a triple bottom from 7/10-7/12. 4/18’s low of $85.61 was lowest since 12/11! Major Res is the high of $108.93 on 7/19! The range is $85.61-$109.32 since March 1, 2012. It is lower overnight at $106.93 -.53.

 

 

Some random thoughts:

This is not a good time to be a bull…in stocks…and to be VERY defensive in bonds or other income producing securities amid uncertainty over who is/will be running the Fed, and what the policy will be. To make matters worse, the FED conclave in Jackson Hole is rapidly approaching plus a two-day FOMC meeting Sept. 17-18. Barron’s was full of lower earnings talk this week…especially retailers!…and this is back to school month!

Adding to the uncertainty are Bernanke’s likely replacements: Yellen and Summers – the latter could throw everything in disarray but is now the favorite among speculators…but there are also two hinted at but unannounced ‘draft choices.’

But bonds are the big concern as those top stories indicate. Only story that stands apart is the complacency (?) in stocks…in a market with little or no direction, no consistency among key stocks…like Apple…and also including GOOG/CSCO/MSFT and other biggies.

Mauldin Economics points out that in just TWO days the yield on the 30 year treasury surged from 3.60% to 3.78%. So, you say…well that is 176 basis points or 4.4%. He points out that if the same happened to the Dow it would be an increase of nearly 700 points!!! – in two days??? But if that is not enough, TB’s research shows:

Look at the 30 year treasury: the range for the week was 100.44 to 95.44 – a 5% decline – in just FOUR days???  The range since May 2 is 1.63% to 2.91!! The 10 year is 2.67% to 3.87%. But wait…

The long TIP continues to be the biggest loser! Since the April 5th high (106.94O it has plunge to 78 – a 23% decline!!! Also look at the 30 year treasury: the range for the week was 100.44 to 95.44 – a 5% decline – in just FOUR days???

No man is an island…nor is the stock market and with Egypt we may be on the brink of Middle-East chaos…a united jihad? Hopefully not but the Egyptian military is doing everything it can to unite the Muslims. What started out as a military coup on an elected president who dismantled the constitution and protections for non-Muslims, is turning into ethnic cleansing and WE, the United States are caught once again as we were in Iran, and now Iraq, with Afghanistan and Pakistan in the wings, and Syria up for grabs…who knows when Turkey will come into play.

What makes us look bad in all this is we preached democracy…democratic elections, but we wanted OUR kind of democracy, not what the people in those countries chose. How does this make us look? Like hypocrites and just another western nation exploiting the Middle East for its natural resources…do we really care for the people? Only if they are like us…no way to unwind that without giving in and supporting regimes that are against us. Now with Suez Canal access and flyovers in question…what do we do? We wait.

Have a great week…if you can stomach it!

TB

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