Interdum stultus opportuna loquitur...

Thursday, September 16, 2004

Resynch Over

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

The Fed did three repurchases last night;

  • a $13 billion, 14-day ($12.337bill in Treasury-backed collateral);
  • a $4bill, 6-day ($0.783bill in T-backed... this was mostly mortgage-backed); and
  • an $8.25bill overnight ($7.634 in T-backed),

The midnight repo pump was good for 4 points in 40 minutes as a result (and the $8bill overnight didn't even occur until just after midnight). From there, it was all downhill.

Before the market opened, figures were released by the US government... shoe production exceeded the latest 5-year target...

Hang on - that's from Orwell's 1984.

In real economic news:

  • the CPI showed that consumer prices increased by 0.1% and "core" inflation (excludng pesky food and energy) also rose 0.1%. Consensus had guessed that both would rise 0.2%. This rounding error was seized on by journalists as the reason for the early rally; and
  • New jobless claims numbers showed that 333,000 people filed (an increse of 16,000); consensus had guessed 340,000. Another rounding error, another "journalistic rationale" for the wiggles in the market chart.

Later in the session, at noon NY time, the Philadelphia Fed survey was released, and it was a complete Potter. Consensus was for a reading of 24, with a range of 20-31. The actual reading was 13.4 - a shocking "miss" which gave the equity markets something to think about.

After all, he Philly Fed is correlated with Industrial Production numbers, and Industrial Production numbers are (weakly) correlated with GDP, and GDP is correlated with NIPA profits, and NIPA profits are correlated with profits to listed equity, and profits to listed equity are (weakly) correlated with stock prices. So once you carry the 1, divide by a prime number and subtract the first number you thought of, it's time to sell stocks (for a couple of hours, then forget everything except "stocks for the long run").

In the Rant that I lost, I had discussed why I was not that impressed that technology stocks were rising to "meet" broader measures like the Dow and the S&P500.

Following a variation on John Hussman's terminology, I like to think of the market technical structure as "constructive" or "not constructive". The "constructive" market position is favourable to short term unhedged long positions. I find that this language removes the analysis one level away from "bullish/bearish". It sounds unnecessary - word games - but in a world where I am not comfortable being long for more than 5 minutes, it genuinely helps.

If the technical structure of the market is favourable, then the market can have rallies which defy the appalling fundamentals (which are worse than 1929 - both for the US economy in general, and US stocks in particular). The the underlying (fundamental/valuation) structure is poor, which argues against long term unhedged exposure to equities. There will always be a case for selective purchase of "good" stocks, but at times it makes sense to hedge away market risk.

Anyhow - back to the Lost Wisdom...

I had written about how the snap up in tech stocks (and particularly the Semiconductors) was simply a mechanism by which the various indices were "re-synchronising". I also offered the view that it was not going to be a "constructive resynchronisation"; instead, techs would rise as the Dow and S&P softened - and then they would decline in synchrony.

But the whole lot went into cyberspace and disappeared. Quelle fromage. (I know - it's dommage - but I prefer cheese).

While the two Nasdaq indices have softened somewhat from their recent swing highs, I have gotten back on deck before the synchronised downswing. Everything has bounced significantly higher than I had anticipated - and I think it has a lot to do with the fake poll bounce for George Bush following the RNC crapfest.

The fake poll bounce was generated by one media source (one with a fondness for the Chimp-in-Chief) which claimed that Bush opened an 11 point lead over Kerry after the RNC. No other poll showed this (and Dubya's internal polling showed the smallest bounce for an incumbent in polling history), but the first poll that was touted far and wide. In short, the "Republican Echo Chamber" got to work and blasted the "Good NEws" across the airwaves.

This led some to believe (erroneously - wait and see) that Shrub was likely to win the election. And so stocks were bought - by the dumb bastards who think Republicans are better economic managers (they're not) and that stocks rise more when Republicans are in power (they don't).

The only - and I repeat, only - things that will save Bush from fulfilling his destiny as a congenital one-termer are as follows:

  • poll fraud (not beyond the realms, given Fla in 2000); and
  • the "capture" of Osama bin Laden.

I have put "capture" in quotes because if it is announced before the election, then they have been keeping him on ice for two months at least.

Recall that Daddy Bush, Reagan and Kissinger conspired to do the exact opposite - to prevent the release of the Iranian Embassy hostages until after the election in 1980; the fact that the hostages were still being held was presented as a foreign policy failure of the Carter administration... and all the while Kissinger was working furiously to prevent their release.

The DJIA gained 13.13 points (0.13%), closing out the day at 10244.49 points; the broader S&P500 gained 3.13 points (0.28%), finishing the session at 1123.5.

Technology investors - Pavlov's Dogs - again couldn't help themselves. The Nasdaq Composite gained 7.56 points (0.4%), to close at 1904.08, while the larger-cap stocks fared worse with the Nasdaq100 adding 2.67 points (0.19%), to end at 1417.97 points.

The broader stock market measures rose: the NYSE Composite Index gained 28.29 points (0.43%), closing at 6574.61, while the broadest measure of US equities, the Wilshire 5000 posted a gain of 43.67 points (0.4%), finishing the session at 10956.52

NYSE Volume was pretty light, with 1.11 billion shares traded; Nasdaq Volume was also below average, with 1.32 billion shares crossing the tape.

Nasdaq Composite1904.087.560.4%
NYSE Composite6574.6128.290.43%
Wilshire 500010956.5243.670.4%
NYSE Volume1.11bn--
Nasdaq Volume1.32bn--
US 30-yr yld4.88%-0.09%-1.75%

On the NYSE the number of advancing issues dwarfed declining issues by a staggering 2459 to 835; a one-day A/D reading of 1624. On the Nasdaq, gainers outpaced losers by 1935 to 1077 - still high, but nothing like as mindless as the NYSE statistics.

NYSE advancing volume exceeded volume in declining stocks by 727.68 million shares to 366.32 million; 2/3rds of total volume was in advancing issues. Even Pavlov's Dogs on the Nasdaq couldn't match that - Nasdaq advancing volume was higher than volume in declining stocks (455.78 million shares to 265.52 million).

On the NYSE, 119 stocks hit fresh 52-week highs, and just 10 fell to new 52-week lows. In Tech-land, 77 stocks posted new 52-week highs, and 19 dropped to new 52-week lows.

Advancing Volume (m)727.68455.78
Declining Volume (m)366.32265.52
New Highs11977
New Lows1019
Equity Call Volume2.33m0.1m4.61%
Equity Put Volume1.57m-0.35m-18.08%
CBOE Volatility Index14.39-0.25-1.71%
CBOE Nasdaq Volatility Index19.92-0.38-1.87%
Bonds rose at the long end, with the benchmark US 30-yr yld shedding 0.087 points to 4.871%. The rest of the yield curve dropped as well; with 10-year yields at a hair over 4%, the bond market is certainly not pricing in a robust economic recovery.

UST 2Y (yld)2.392-0.09-3.63%
UST 5Y (yld)3.264-0.114-3.37%
UST 10Y (yld)4.062-0.1-2.4%
UST 30Y (yld)4.871-0.088-1.77%
The Banks Index gained 0.67 points (0.68%), finishing the session at 99.67; within the index,
  • the Derivative King - JPMorganChase gained $0.50 (1.28%) to close at $39.58; and
  • Citigroup gained $0.20 (0.43%) to close at $47.18

The Broker-dealer Index gained 0.94 points (0.73%), finishing the session at 129.03; the ticket clippers lined up as follows -

  • Merrill Lynch gained $0.36 (0.7%) to close at $51.86
  • Morgan Stanley Dean Witter gained $0.60 (1.16%) to close at $52.25
  • Goldman Sachs gained $0.75 (0.81%) to close at $93.16
  • Lehman Brothers gained $0.65 (0.84%) to close at $77.65

The Philadelphia SOX (Semiconductor) index gained 0.67 points (0.18%), finishing the session at 381.45

  • Triquint lost $0.00 (0%) to close at $3.83
  • Micron Technology gained $0.16 (1.32%) to close at $12.26
  • Intel lost $0.31 (1.52%) to close at $20.11
  • Altera gained $0.09 (0.46%) to close at $19.50
  • JDS Uniphase gained $0.01 (0.29%) to close at $3.47

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

  • Biotech Index gained 3.37 points (0.64%), finishing the session at 527.02
  • the Hi-Tech Index gained 2.07 points (0.47%), finishing the session at 445.08

Gold weakened by $0.50 (0.12%) to $404.50 per ounce. The Gold Bugs Index rose 0.68 points (0.33%), to close at 206.43. Silver rose $0.02 (0.29%) to close at $6.30 per ounce. The Gold and Silver Index (XAU) lost 0.28 points (0.3%), finishing the session at 93.17

PHLX Gold and Silver Index93.17-0.28-0.3%
AMEX Gold BUGS Index206.43-2.31-1.11%

Oil was firmer, rising by $0.39 per barrel, closing at $43.97 per barrel; the market is pretty sanguine about the prospect of Hurricane Ivan; although oil derricks are built pretty tough, Ivan is a genuine multi-decade event - and 25% of supplies to the US come from the Gulf of Mexico. Add that to the likely huge inventory drawdown this week (last week's drawdown of 7.1 million barrels was a big surprise to "analysts" who expected a drop of just over 1 million barrels).

And for God's sake - when will people stop listening to OPEC? The current malarkey about how they will raise production targets is a bad joke. They have no spare capacity. Saudi Arabia nominally has spare capacity, but the "spare" capacity is in wells with a water cut which is verging on the ridiculous (that is, most of what comes out of the well is the water that they pump in to push the oil out).

The Oil and Gas Index (XOI) gained 1.76 points (0.27%), closing the session at 662.55 while the Oil service stocks (OSX) Index gained 0.16 points (0.14%), to close at 115.30.

Reuters CRB273.5-1.55-0.56%
Crude Oil Light Sweet43.970.390.89%
AMEX Oil Index662.551.760.27%
Oil Service Index115.30.570.5%
US Dollar Index89.00-0.4-0.45%
Australian Dollar0.698800.53%
Swiss Franc1.2678-0.0017-0.13%

France's benchmark CAC-40 Index lost 0.17 points (0%), finishing the session at 3691.68, and the German DAX-30 Index gained 21.9 points (0.56%) to close at 3963.65; in the UK, the FTSE-100 Index gained 8.1 points (0.18%), closing at 4556.50 points.