Interdum stultus opportuna loquitur...

Wednesday, September 08, 2004

Greenspan Speaks!! (SO?...)

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Greenspan made some utterances last night; no idea what he said, and I don't care. I bet he used the words "soft patch" though - and not referring to the soft patch between his ears.

The day that cretin utters a single sentence that I find interesting, is the day I find a quiet nook somewhere and hang myself - because if I find anything he says interesting it means I must have developed some form of terminal brain disease which is eating away at my cognitive functions.

Remember how we - the West - spent trillions of dollars (and killed millions of peasants) to prevent central planning from sweeping the globe? We called it the Cold War. It was meant to prevent the socialisation of the means of production, because decisions about what, for whom, and how to produce were best left to private hands.

So why is there a Cult of Greenspan? Why do we think that monetary policy is some form of omniscient central planning? (By "we" I mean the rest of the lumpenproletariat).

After all, if Greenspan was anything to write home about, he would not have failed dismally when he tried to be a consultant in the private sector. Anyone who finds themselves attached to the public teat at the age of 70 is a failure, not the fitting subject for a book.

The Federal Reserve's Open Market Operations desk did an 8-day, $4.5billion repurchase ($4.28 bill in T-backed), which was enough to play the "repo pump" (plus, da Boyz tend to push markets up leading into speeches by Greenspan and Bush - just another example of mutual ego-masturbation).

Greenspan started yabbering at 10:30 a.m. NY time (12:20 a.m. proper Aussie time) - and the markets were dutifully pushed up pretty much until he opened his gob. Take a look at this here purty pitcher (and note that the timestamps indicate the start of the bar, for some reason):

Note that once the Maestro-bater was finished droning on and on and on, the market made lower highs and lower lows for the rest of the session; by 6 a.m. it had made its low for the day.

At the far right of the chart, you can see that an odd thing happened at 6 a.m.; all of a sudden - after the cash market closed and the futures market became nice and thin - the S&P futures were pushed up a full three points (see chart below). Actually, all equity indices were pushed up. It's not clear to me what this achieved, but it was another forceful example of the high level of manipulation possible in the 15-minute end-of-day period in the futures markets.

The Dow Jones Industrial Average lost 29.43 points (0.28%), closing out the day at 10313.36 points; the broader S&P500 Index lost 5.03 points (0.45%), finishing the session at 1116.27.

The tech-heavy Nasdaq Composite lost 7.92 points (0.43%), to close at 1850.64, and the Nasdaq100 Index dropped 5.07 points (0.37%), to end at 1376.77 points.

The broader stock market measures lagged the blue-chip Dow: the NYSE Composite Index lost 21.55 points (0.33%), closing at 6534.09, while the broadest measure of US equities, the Wilshire 5000, posted a loss of 53.01 points (0.49%), finishing the session at 10847.15

NYSE Volume picked up a little, with 1.25 billion shares crossing the tape, while Nasdaq Volume was still about 10% below average, with 1.44 billion shares crossing the tape.

Nasdaq Composite1850.64-7.92-0.43%
NYSE Composite6534.09-21.55-0.33%
Wilshire 500010847.15-53.01-0.49%
NYSE Volume1.25bn--
Nasdaq Volume1.44bn--
US 30-yr yld4.95%-0.06%-1.16%

On the NYSE declining Issues outpaced advancers by 1923 to 1351; this is a very large tilt towards decliners considering the relatively muted decline in the major indices. On the Nasdaq there were also more declining stocks than advancers, 1921 were down for the day while 1148 rose for the day.

On the NYSE declining volume outpaced volume in advancing issues by 808.22 to 424.27; again, on a day where declining volume is almost 2:1 over advancing, it is surprising (not really) that the headline indices didn't decline more. Things were a bit closer to balance on the Nasdaq where declining volume just shaded volume in advancing issues by 447.21 to 314.73 (million shares).

There were 115 NYSE stocks which posted new 52-week highs, and 13 hit new 52-week lows; 69 Nasdaq stocks reached new 52-week highs, and 44 fell to fresh 52-week lows.

Advancing Volume (m)424.27314.73
Declining Volume (m)808.22447.21
New Highs11569
New Lows1344

Equity call option volume dropped pretty significantly, driving the put-call ratio back up to 0.82; the change in the put-call ratio is the result of a fall in call buying, not an expansion in puts.

This recent pattern of call volume exploding on up days, and contracting on down days, is a prima facie piece of evidence that options are now primarily a speculative vehicle (DUH!!). It is also evidence that a lot of new speculators are entering this market, oblivious to how it works.

Another piece of evidence is that a lot of the "small lot" trade happens in options which are one strike out of the money, but in the same direction as the trend (i.e., calls when the market is up, puts when it's down). That shows a lack of understanding of time decay; trading a slow-moving instrument on a breakout strategy (i.e. buying out-of-the-money calls on an UP day) is a recipe for disaster.

Sensible out-of-the-money options strategies are contrarian - the options become artificially cheap because demand for them dries up (and the nuffnuffs who bought for a breakout in the opposite direction become forced sellers). That's not to say that they work all the time - but played properly you only need about 35% of your options trades to work to make a living from it.

Volatility is still at very low levels - levels associated with swing peaks. The market is still reacting from hitting daily overbought levels very quickly; CNBC and other pimp-o-rama media outlets are talking up the "new bull market". I'm not giving anybody any advice, but I am buying puts.

Equity Call Volume1.68m-0.45m-21.21%
Equity Put Volume1.37m-0.08m-5.71%
CBOE Volatility Index14.06-0.01-0.07%
CBOE Nasdaq Volatility Index21.28-0.16-0.75%
Bonds rose at the long end, with the benchmark US 30-year bond yield shedding 0.058 points to 4.954%. The rest of the yield curve steepen, with shorter maturities falling further than the 30-year.

UST 2Y (yld)2.465-0.09-3.52%
UST 5Y (yld)3.363-0.086-2.49%
UST 10Y (yld)4.166-0.07-1.65%
UST 30Y (yld)4.954-0.054-1.08%
The Banks Index lost 0.85 points (0.85%), finishing the session at 99.05; within the index,
  • the Derivative King - JPMorganChase lost $0.50 (1.25%) to $39.37; and
  • Citigroup lost $0.39 (0.83%) to close at $46.82

The Broker-dealer Index lost 0.92 points (0.72%), finishing the session at 127.23; the ticket clippers lined up as follows -

  • Merrill Lynch lost $0.60 (1.13%) to $52.53
  • Morgan Stanley Dean Witter lost $0.52 (0.99%) closing at $52.20
  • Goldman Sachs lost $0.79 (0.86%) ending at $91.44
  • Lehman Brothers gained $0.29 (0.38%) to close at $76.54

The Philadelphia SOX (Semiconductor) index lost 1.7 points (0.48%), finishing the session at 352.06

  • Triquint lost $0.30 (8.22%) to $3.35
  • Micron Technology gained $0.03 (0.27%) to close at $11.15
  • Intel lost $0.17 (0.85%) finishing at $19.72
  • JDS Uniphase lost $0.04 (1.3%) to close at $3.04

Other indices popular with the beta-chasers were down, with the

  • Biotech Index lost 6.19 points (1.22%), finishing the session at 499.86
  • the Hi-Tech Index lost 0.44 points (0.1%), closing at 422.01

Gold strengthened by $1.00 (0.00%) to $399.50 per ounce. To the Gold Bugs Index lost 0.94 points (0.47%), closing at 198.36. Silver fell by $0.02 (0.34%) to close at $6.19 per ounce. The Gold and Silver Index (XAU) lost 0.38 points (0.41%), to 91.77.

PHLX Gold and Silver Index91.77-0.38-0.41%
AMEX Gold BUGS Index198.36-0.94-0.47%

Oil lost ground, shedding $0.52 per barrel, closing at $42.66 per barrel. If "pundits" are to be believed, it is because some know-it-all at some conference somewhere said that oil would drop 30% after the US and Iraqi elections.

What the...?

First, the prospect of Iraq having elections that don't completely exclude the Shia is miniscule - which in turn means that the odds that Iraq descends into civil war are very high. The U.S.'s "killing babies and grabbing oil for Jesus" campaign has as a fundamental(ist) precept that Iraq can not become a Shi'ite theocracy. Major players in US foreign policy wouldn't like that (to find out who those folks are, do a Google search on Franklin Feith AIPAC Pentagon).

And guess what happens if you give the vote to a country with 60% Shi'ites?

So the U.S. will try and sell a bill of damaged goods - pretending to "enforce democracy", while framing the rules to disenfranchise the Shi'ites. It doesn't even sound good on paper - just another indication of what is wrong in world politics... "You are free to choose whatever we tell you, from a menu that we provide; if you object, you are free to watch your kids get slaughtered by our 'heroes'."

(Every time you see the media fawn and the newsreader's face go all "concerned" about the tragedy in Ossettia, bear in mind that more Iraqi kiddies died every day under the US-led sanctions regime, and more have died since the subsequent invasion - and that act of terror has lasted ten years and counting).

Remember - we are the good guys.

Anyhow, some clot reckons oil will fall 30%. Of course, he won't face any penalty if he's wrong.

To those who speak Hindi - isn't it strange that "pundit" (which comes from the Hindi "pandit") is so very close to "bandit" when you pronounce the two with the softer Hindi "p"? (Bandit - the word - apparently stems from an Old German term).

The Oil and Gas Index (XOI) lost 0.8 points (0.12%), to end at 650.61 while the Oil service stocks (OSX) Index gained 0.37 points (0.33%), closing at 113.2.

Reuters CRB27300%
Crude Oil Light Sweet42.66-0.52-1.2%
AMEX Oil Index650.61-0.8-0.12%
Oil Service Index113.20.370.33%
US Dollar Index88.8-0.53-0.59%
Australian Dollar0.6960.00360.52%
Swiss Franc1.2606-0.0077-0.61%

The European markets "marked time" for the bulk of the session; since most market participants are nuffnuffs, they sat on their hands waiting for Greenspan to finish whatever waffle he was starting - and he wasn't finished by the time Europe closed. (Actually he was finished by the time they closed - but only just). Still, the Euromarkets wandered around like a lost Frenchman.

France's benchmark CAC-40 Index lost 4.59 points (0.12%), closing at 3677.55. The German DAX-30 Index lost 4.88 points (0.13%), finishing the session at 3884.16; while that looks boring on the face of it, the index actually had a few gyrations and a 25-point range; it almost touched 3900 late in the day - its high was 3898.73 (the Dax futures got to 3901.50; any idiot who bought 3900 and above on the breakout got handed his head - check out the chart below - look how hard it dropped after the day's high).

In the UK, the FTSE-100 Index lost 7.2 points (0.16%), finishing the session at 4558.4.

Of particular interest to me is the fact that British Airways announced that they were selling their QANTAS stake: that was forecast (by me) after QAN's February 21, 2002 earnings release. As the New Zealand woman in the shampoo commercial says "Ut won't heppen over night, but ut WULL heppen".

The airline industry - globally - has not made a cent in profits in its lifetime. Sure, it provides employment, and safe, affordable international travel. The people who build commerical aircraft just manage to make profits from building them - thanks to exploiting tax loopholes and using multi-juridictional lease agreements. But as far as a decent, risk adjusted return on capital is concerned, forget it. Most of the operational profit for plane-makers comes from selling military aircraft to government - because defence contractors buy political influence and can always gouge taxpayers.

Anyhow - the airline industry is a destroyer of capital. Remember that next time you see a "Buy"recommendation on an airline stock; don't let patriotic idiocy sway you just because it has a marsupial on its tailfins. I don't believe for a moment that this massive amount of QAN stock being freed up, will help QAN's share price; it is a huge chunk of stock that won't be locked up forever, regardless of how hard the book-runners tries to pimp it. There might be a "nuffnuff bounce" - there have been several in QAN - but it's an airline stock.