Quote of the Day from the Friars Club Encyclopedia of Jokes: “Insanity is hereditary – you get it from your children.” – Sam Levenson
Bloomberg Quote of the Day: “Formal education will make you a living; self-education will make you a fortune.” – repeated today…guess they felt it was important.
The trend job creation rate is 245k in the last three months slightly above the 244k per month in the last six months. The unemployment rate increased slightly as household employment grew less than the increase in labor force. Today’s data means the trend job growth we use to forecast end of ‘14 unemployment rate is 208k – if the participation rate increases to 63% (12m average), the U-rate hits 6% by December ’14. Inflation remains modest but has picked up in the last three months. Consumer sentiment fell in July while personal income rose modestly.
Real consumer spending rose 2.5% from Q1 to Q2, indicating consumers spending rose modestly in the second quarter. Home re-sales rose modestly and have averaged 4.74 million over the past 6 months. Meanwhile, both new home sales and housing starts declined moderately in June. The ISM manufacturing survey increased moderately in July.
This week’s economic calendar is fairly light. The highlight of the week will be the ISM Non-Manufacturing survey (Tuesday). We will also get June Factory Orders (Tuesday), June International Trade (Wednesday), June Consumer Credit (Thursday) and Q2 Productivity & Cost Preliminary and June Wholesale Inventories (Friday). Courtesy of Economic Advisory Service
Bloomberg Top Stories:
*Banco Espirito Santo Junior Bonds Drop as $6.6 Billion Bailout Forces Loss – Ay caramba!
*Portuguese Bonds Gain With S&P Index Futures as Commodities Rebound – saudades
*HSBC’s Gulliver Sees Revenue Rebound in 2015 as First-Half Profit Declines – sure he does!
*Argentine Default Sours Peso Outlook as Judge Orders Talks With Creditiors – you can lead…
*Half-Trillion-Dollar Money Fund Exodus Magnifying Treasury Bill Shortage – hmmm
*Portugal Rescue Avoids Cyprus-Style Pain in Test of New EU Bank Framework
*Lacker Says Investors May Be Underestimating Pace of Fed’s Rate Increase – or not!
*BofA’s Two-Hour Halt in Trading Russian Stocks Shows Sanctions Confusion – or ignorance!
*Booming ‘African Lion’ Economies Are Gearing Up to Emulate Asia’s Tigers – is that good?
*Modi’s Millions of Toilets Shunned by Villagers Who Stick With Tradition – hole in the ground?
*Empty Holiday Store Shelves Hinge on Persuasive Power of 120 L.A. Workers
*London Renters Find Bargains in Billionaire Playgrounds as Home Costs Soar – POP!!!
*Israel Holds Fire for Gaza Aid After Violence Trips Up Diplomatic Efforts
*New War Risk on Russian Periphery as Armenia-Azerbaijan Clashes Increase
*U.S. Doctor With Ebola Improving as Calls for More Aid to Africa Increase
Friday’s Market Summary:
Another downer, and following Thursday’s bloodbath – a disaster? How so? Because the Dow
Didn’t even get the ‘dead cat bounce’ TB had anticipated (a recovery of <50% of the plunge). Far from it: The Dow had plunged 317 points Thursday, closing AT the session low! Friday’s better than expected increase in jobs was dispensed with even before the market opened. At the high, 10am EDT, the Dow gained just 22 points!!! It then ‘swooned’ to -127 over the next two hours, and then after a feeble attempt to recover settled the session at -70. YTD dropped to -0.5%. Other losers YTD: S&P 600 Small Cap -3.3%; Russell 2000 Small Cap -4.2%!; Nasdaq: Financials -3.6% (NYSE Financials barely positive at +0.6%); Banks -4.7%; Insurance -4%; Industrials -3%; KBW Banks -0.1%. Winners to date? Dow Transports + 9.7%; NYSE Healthcare +8.6%; Now look at these nice subsectors – disconnect???: Nasdaq: Transports +10.9%; Computers +10.3%; Biotech +10.5%; Philadelphia: Gold and Silver +18.2%?; Semiconductors +14%; BI REITS +14.9% Don’t you have to wonder why you didn’t just play it safe and collect the divvies? Dow Utilities +10.2%! Nobody ever went broke taking a profit! Oh, yeah but you have to pay taxes…do it happily! More? Tha-a-a-ts all folks!
Volume was lower but still well above average at 3.79B shares vs 4.25B – the same as it was on June 30th! Remember average is around 3.5B shares – a rarity these days. Real trades on the NYSE also slipped but to a well above average 792M shares vs 927M – their highest since 6/27! A/D’s and Breadth were negative natch. New 52 week highs were slightly lower at an anemic 46 vs 56 from 149!!! New lows were higher again at a strong 260 vs 234 vs 115! The VIX wasa slightly higher but with a new handle; 17.03 +.08 with a session high of 17.57! This month could have one interesting options expiration!…you didn’t see that coming?
Total NYSE Volume slipped to 3.79B shares vs 4.25B – same as June 30th (end of quarter), vs 3.44B vs 3.14B vs 2.77B. Real NYSE Volume also dropped to 792M shares from 927M – highest since June 27th’s 1.49B (Friday before QE) vs 680M vs 628M vs 589M – 9 days ago it was 541M, the third lowest of 2014 (531M was the low) – that with 236M at the bell!!! 537M on 7/3 was second weakest since April 30th. There have been just four sessions above 800M since 4/28! The 12-month average remains at a very weak 706M. Since 4/30 the average volume has been just 673M shares ranging from 531M to 927B….12 month high is 2.06B shares on 9/20/13!
A/D’s were off-the-charts were negative – for NYSE that is SIX straight! NYSE -1.7x vs -6.3x!!! vs -1.6x vs -1.5x vs -1.3x – prior to that they were puny positives! Nasdaq -1.8x vs -5.1x! vs +1.4x vs +1.03x vs -1.7x vs -2.1x. Breadth was similar also 6th straight loser for NYSE: NYSE -1.7x vs -8.4x!!! vs –1.2x vs -1.8x vs -1.4x; Nasdaq -1.9x vs -5.6x! vs +1.7x vs +1.2x vs -1.5x. New 52 Week Highs slipped again to a very weak 46! vs 56 vs 149 vs 181 vs 152 – recent range is 46-580!!! New Lows rose again to a strong 260!!! vs 234 vs 115 vs 118 vs 141 vs 55 – recent range is now 24-260! S&P VIX closed at 17.03 +.08 with a range of 15.52-17.57!…even deeper in bear territory!
Bonds traded strong to new 12-month highs: 10 yr closed at 2.49% +9/16; 30 yr closed 3.28% +11/32. The long TIP closed at 0.92%! +15/16. Overnight little changed: 10’s 2.48% +1/16; 30’s 3.28% –; and long TIP 0.92% -1/16. 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: 0.238% 3 mos.; 0.334% 6 mos., both remain near their record lows, set recently: 0.222% and 0.320% respectively! NOTE the Fed Funds rate has averaged 0.09% since 5/22/13 and is at 0.08-0.10% where they have been for weeks! Foreign bond yields lower –ex Greece: Germany 1.13% –; UK 2.54%! -1; France 1.51% –; Italy 2.69% -7!; Spain 2.48% -7!; Portugal 3.60% -7!; Greece 6.07%!!! +7! The recent high on selloff was 6.75%. Highly volatile!!! Recently 5.42% to 12.57%. Japan: 0.52% -1.
Gold traded down to $1279.70 (lowest since 6/19) before closing at $1294.80 +$12.00 Third close below the psychological $1300 two days (even the session highs couldn’t top it), after a negative key reversal (higher high, lower low and close below prior days low!)…note the first break is usually a false break…and so it was! It remains well below the psychological support level of $1300! 7/17’s session high was $1346.60, highest since March 19th!!! 6/9’s $1240.20 was lowest since 1/31/14!!! It remains well below all three moving averages which remain near locked…200 day $1287, the 50 day $1293 and the 40 day at $1302!!! Those were all critical support levels with final support! Note the recent high of $1392.60 on 3/17, highest high since 9/4/13…that too ended the session with a negative key reversal sparking the downturn! Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!! Overnight it is slightly lower at $1292.50 -$2.40 in an inside session.
Crude traded down to $97.09!!! – lowest since 2/5 before settling at $97.88 -.29. 7/22’s high was $105.20, still highest since 7/2. 7/15’s session low was $90.01 – lowest since 3/21 – not EIGHT handles since 6/30! 6/20’s run to $107.73 – highest since 9/19/13, a huge down session – put it in freefall and now well below what was critical support at $99.87 – the 200 day! 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. RES now at the 200 day ($99.86), then the 50 day ($103.59), and then the 40 day ($103.70)!!! The range is $85.61-$112.24 since March 1, 2012. Overnight it is $97.62 -.26 – in an inside session.
European equity markets higher – 1st in 3 sessions; Asia mixed: UK +0.5% vs -0.8% vs -0.3% vs -0.1% vs +0.6%; France +0.8% vs -0.5% vs -1.1%! vs +0.1% vs +0.9%; Germany – vs -1.5%!!! vs -1.2%! vs +0.1% vs +0.8%; Japan -0.3% vs -0.6% vs -0.2% vs +0.2% vs +0.6%; Hang Seng +0.3% vs -0.9% vs +0.1% vs +0.4% vs +0.9%; Korea +0.4% vs -0.2% vs -0.3% vs +1% vs +0.6%; India +1% vs -1.6%!!! vs -0.7% vs +0.4% vs closed. U.S. equity futures better but well off the highs: Dow +39 (range 49); SPX +5.70 (7); NDQ +13 (12).
Some random thoughts
…did you see 60 Minutes last night??? China has a housing bubble that makes, not only ours look like a boom, but makes Japan’s look like a downturn…and we all know what happened to them…they have been in the dumps since 1989! …and just like China everyone thought they would take over the world!
Let’s review: While Japan had a boom, most of their money went into buying foreign assets (Empire State Building, Pebble Beach, etc.), and while those prices plunged they were saved by the strong Dollar/weak Yen – arigato! The Nikkei was decimated (note that even with the recent rally it is still just 15500 – not even back to the first selloff – let alone the 12/29/89 peak of 38915!!! Think about that!
Now compare and contrast: The Hang Seng has risen from 58.61 (not a typo) in Sept. 1967 to a peak of 27,812 on 12/31/07 (why do these peaks always come at yearend???). During the crisis it dropped to 13,576 (-51% from the peak in 15 months! But somewhat better than our markets did: S&P fell 56% over the same period).
Now back to the present: sometime in the last six months, 60 Minutes did a segment on a woman…a wealthy Chinese woman who made her fortune in real estate development. She said it was probably setting up for a bust (as did another Chinese developer), but she was staying in …until it does! What did they think? They could then get out? No, the Chinese are much more pragmatic than that…easy come, easy go???
Last night’s show featured another Chinese developer who echoed the same thing and just as passively: if this was the U.S. they would be stepping out on the ledge (that’s what TB means by pragmatic)!
They have built entire cities…not just one or two…perhaps a dozen…or more? These are essentially empty buildings…sparsely populated by a few poor fools who have lost three generations of savings and it could and will get worse. To entice people out of the cities to these behemoths they have put in shopping malls…totally empty but with signs for McDonald’s, KFC, Prada, Tiffany, and other name stores…and that’s just it: these stores haven’t taken leases…they didn’t even know their names were up there! Try that in the U.S. on a loser and you would wind up in court!
This is a pending bust of epic proportions! In the ‘80’s people were teaching their children Japanese…today Chinese…history does have a way of repeating itself.
Now if we could just convince the right wing of the right wing GOP that we are not in a crisis but if they persist we will be! Meanwhile our infrastructure is crumbling, we have an immigration problem, we need total tax reform, yet the GOP (and by definition) the House of Representatives has voted to go to court against Obama (the far right wanted impeachment – once again, not having learned the lessons of the past…that is what happens when you listen to just one viewpoint…begin to believe in it! Now they have done what Congress does best: recess for five weeks while the world burns…et tu, GOP!
God bless America…nobody else will!
Hope you all had a fun and relaxing weekend…have a prosperous week!