5/22/14…a rally for no ‘good’ reason

This is out very late due to a family matter this morning. Nothing significant just no time to write.

Quote of the Day from the Friars Club Encyclopedia of Jokes: “If blind people wear sunglasses, why don’t deaf people wear earmuffs? – Spanky (Steve McFarlin)

Bloomberg Quote of the Day: “I generally avoid temptation unless I can’t resist it.” – Mae West

Wednesday’s Market Summary:

Up, up and away…right out of the chute…as if they knew what the Fed would say…and just what did the Fed say? The key as noted by ISI Group and a few astute others was this: the unemployment rate will continue to decline…hey, that’s good for stocks, right? Then they added that this will not be by a huge increase in jobs but a continued decline in the participation rate! Nothing new here…unemployment benefits expire, workers – you know those mllions that just wait for their bennies to run out before they start looking for a job…get real, people!!! But wait, shouldn’t that have been a positive for bonds…well…uh…no. Ya see, this will cause inflation to rise…albeit modestly…and thus lead to the Fed raising interest rates. Even the ‘affable’ Larry Kudlow has said they won’t raise them in our lifetimes…or at least his! Now lets look at the more logical (in TB’s humble opinion), upshot: first, inflation growth will remain modest. Thus don’t look for any increase in the Fed Funds or LIBOR rates – which recently set new record lows and are hovering just above them! The EU is talking about raising rates…fine, let them…their unemployment is worse than ours…much worse and energy costs are also higher. Well at least the Fed will continue to ‘taper’ the QE’s…hasn’t done much so far even after scaring the bejesus out of us a year ago. Remember, as TB has stressed the QE balance sheet is being kept afloat by ‘excess reserves’ of the big banks…the ones who continue to write mortgages, take the origination fees, sell them to FNMA/FHLMC (who in turn sell them to the Fed), and retain the 0.5% servicing fees – thus having no, zero, zip, zilch capital invested and then leave the money at the Fed where they earn 0.25%…not much you say…but it is about $80 trillion – with an effective cost to the banks of ZERO! So overall they are earning near 1% by ‘churning’ their capital into mortgages and then selling them. Loans? Go see a payday lender…which they are also financing! Yes, the heart of the banker…as the polished marble rock in front of the BofA Building in S.F. shows…is BLACK!!! 2.5% plus or minus is the new normal for the 10 yr Tsy! There you have it…the answer to yesterdays rally…led by the Dow and NDQ 100 (+1%) and followed by the Composite +0.9% and the S&P 500 +0.8% while Trans had to Settle for +0.6% and the best bellweather of the economy the Russell 2000 small cap up just 0.5%! That’s it. Oh, except Dow Utilities which have been under pressure the past few days closed up 0.1% vs +0.2% vs -1.5% and remains far and away 2014’s winner!

Total NYSE Volume actually declines a bit to an even weaker 2.77B shares vs 2.97B vs 2.64B shares!!! …that’s from 3.18B (remember it was an options expiration!) from an average 3.53B – on a ‘down’ day! vs 2.81B vs 2.86B vs 2.98B vs 3B! Real trades on the floor of the NYSE also declined by even more ominously to 587M shares 137M shares BELOW the 12-month average! This vs 649M vs 584M – second lowest of 2014…1/3’s 544M…note 12/31’s was 568M shares. Worse: since 4/30 the average has been just 669M shares with just two 700M days – one barely! The high this month is 775M while the low is 584M just below yesterday’s! Nice rally, eh???

A/D’s were positive but compare to the negatives: NYSE +2.6x vs -2.4x vs +1.8x vs +2.1x vs -2.3x vs -2.1x; Nasdaq +1.5x! vs -3.1x vs +2.2x vs +1.5x vs -2.1x vs -2.8x. Breadth was similar: NYSE +2.6x vs -4.1x! vs +1.6x vs +1.5x vs -4x!!! vs -2.1x; Nasdaq +2.7x vs -3.1x! vs +3x! vs +1.5x vs -2.5x vs -3.3x. New 52 Week Highs rose a tad but remain weak at 132 vs 111 vs 143 vs 71!!! vs 107 vs 208 vs 233 vs 93!!! New Lows fell back to 95 vs 118 vs 72 vs 180 vs 102 vs 62 vs 65 vs 214!!! Wake up, bulls!!!

Lastly volatility…S&P VIX remains bullish…and declined to 11.94 -1.05! with a range of 11.80-12.26 – may have to wait till the week before the next options expiry for another selloff…or… Last Friday’s (expiration) high was 13.66!!! Think about it…k?

Overnight markets as of 2pm EDT (late!,:

Bonds started the day lower and remained their not getting any bounce off the Fed minutes. Is 2.5% on the 10 year the new normal? Could be but with LOTS of volatility: the 10 yr closed at 2.53% -3/16 vs 2.51% vs 2.54% vs 2.52%; 30’s 3.41% -9/16 vs 3.38% vs 3.39% vs 3.35%. The long TIP was as low as 1.00% last Thursday, and closed 1.10 -5/8 vs 1.08% vs 1.08% vs 1.02% having given back most of its 3-1/2 point gain last week! Overnight and this afternoon weaker again: 10’s 2.56% -1/4; 30’s 3.43% -3/8; and long TIP 1.10% –. Cycle highs: 30 yr high was 3.97% on 12/31; the 10 yr recent high 3.03%! Long TIP was 1.64%. The (record?) low of 0.36% was set on 4/5/13.

Libor update: 0.227% 3 mos.; 0.322% 6 mos., both just off their record lows, set recently: 0.227% and 0.32% respectively! NOTE the Fed Funds rate has averaged 0.08% since 5/22/13 and is 0.07% -0.09%. Foreign bond market yields mixed with no major changes Germany 1.41% -2; UK 2.65% +1; France 1.82 -2; Italy 3.24% +4; Spain 3.05%! +4; Portugal 3.80% –; Greece which bottomed at 5.83% on 2/24 looks bad again, stabilizing higher, now 6.40% +4 – high was 6.75%. Highly volatile!!! Range is 5.77% to 12.57%. Japan: 0.59% –.

Gold closed lower at $1288.30 -$6.30 and the high failed to reach $1300 for a second day: $1296.30, this after hitting $1309.20 a week ago. It remains below the 40/50/200 days and the psych support level of $1300 with first res at the 40 day $1297, then the 200 day $1299, and the 50 day $1307. Following the ‘key reversal’ on 3/17 after printing new recent high of $1392.60, highest high since 9/4/13 – which ended in an outside day and nearly a negative key reversal!Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!! Overnight weaker again and still avoiding $1300, now $1289.80 -$4.80 – session high $1296.30. Higher overnight hitting $1304.10 earlier, currently $1295.30 +$7.00

Crude closed strong for a second day at $104.07 +$1.74 with a session high of $104.29 – highest since being slammed on 4/22! 3/2’s session low was $97.37, lowest since 2/4! 1/14’s low was worst since 5/2/13: $91.24! The record high of $114.83 was on 5/2/11, the low since on 10/4/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. It remains well above all three moving averages with support at the 40 day ($101.59) then the 50 day ($101.09), and 200 day $100.34. The recent range is $85.61-$112.24 since March 1, 2012. Overnight and this afternoon an ‘inside session and currently $103.76 -.31, high $104.22 – but coultn’d quite reach Weds. high before failing.

European equity markets slightly higher but treading water for a week, Asia higher: UK — vs +0.1% vs 0.5% vs -0.3% vs -0.1%; France +02% vs +0.2% vs -0.2% vs +0.1% vs +0.1%; Germany +0.2% vs +0.5% vs -0.2% vs -0.1% vs -0.3%; Japan +2.1%! vs -0.2% vs +0.5% vs -0.6% vs -1.4%!; Hang Seng +0.5% vs — vs +0.6% vs – vs -0.1%; Korea +0.4% vs +0.1% vs -0.1% vs +0.1% vs +0.2%; India +0.3% vs -0.3% vs +0.1% vs +1%! vs +0.9% vs +0.4%. U.S. Market as of 3pm EDT: Dow +20; TRANS +49; S&P +8; Nasaq Comp +28; NDQ 100 +21; Russell 2000 +12; Dow Utilities +4.

 

Some random thoughts:

…yesterday’s meeting for RIA’s – a few years ago we didn’t know we, investment advisors were RIA’s! Then came FA’s Financial Advisors so we needed an acronym…

There are several new concepts in the money management area…most sweeping up the accounts that nobody wanted: $500,000 or less. These are on-line servicers that only the young who love their computers and networking and if somebody ‘friends’ a service they will come! Just more and more ways to make a buck and if you the client make money…that’s nice…but not the point. The SEC in its infinite wisdom through the ‘Jobs Act’ has decided to allow ‘accredited’ investors to buy non-registered products ‘on-line’ – some money managers are doing their own research on them…not sure if that is a good thing or not. When there is money in anything, it is caveat emptor…and that’s the way it goes.

See market comments for thoughts…

Have a great day!

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