Interdum stultus opportuna loquitur...

Saturday, April 16, 2005

USRant: Red Enough For Ya?

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

ull Durham was on TV last night. I can remember thinking that Crash's "I believe" speech as he left Annie's house was terrific - everyone I knew memorised it (then again, in a bygone age we memorised the entire dialog reel of both Terminator and Flash Gordon).
"By the close, the ticker was redder than a mosque floor after a US Marines war crime."

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation.

  • a $12billion, weekend repurchase with $4.545billion in T-backed collateral .

See all that repo - $12 bill - and yet only $4.545 bill went to T-backed? The balance was mostly in Agency-backed (i.e., money to save Fannie and Freddie from further destabilising and already-dislocated market).

Major US Indices


The pre-market economic news wasn't too bad;

  • Industrial Production in-line with consensus at 0.3%;
  • Capacity Utilisation at 79.4 (consensus 79.5); and
  • International Capital Flow data showing that foreigners were net purchasers of equities during February.

As a result the Dow opened pretty much unchanged (at 10276.61). It was clearly reacting a little negatively to the IP report, which was being treated as if it was a low-ball estimate.

When the Consumer Sentiment report came out at 9:45, the Dow was already down close to 10200, and proceeded to bounce after the report - despite the fact that it said that consumer sentiment was well below expectations (actual 88.7; consensus 90.9). After a first 15 minutes of decline, everything seemed to wobble upwards.

From there, it was relentless. The Dow never got back above its opening level. The S&P and the tech indices both managed to - they set their intraday highs at about 11 a.m. for the S&P, and 9:55 for the Nasdaq indices. The decline started in earnest at about 11 a.m.

By the close, the ticker was redder than a mosque floor after a US Marines war crime.

The Dow Jones Industrial Average shed 191.24 points (1.86%), closing out the day at 10087.51 points. The index hit an intraday high of 10278.53, and fell as low as 10076.57 during the session.

The market is now almost back to where it closed on the day Shrub managed to finagle enough dodgy ballots in Ohio to clinch the election.

To think - it's only a few weeks ago that the market traded at 10980-something, and CNBC was all whoopin' it up about a new dawn in America, and Freepers were talkin it up as a vindication of the Shrub's policies.

I think that Wall Street can smell the coffee. It can see that the ticket-clippin' and ripoff bonanza that Shrub was trying to set up for them, ain't comin'. The "selling" of Social Security privatisation has hit a massive wall - it's becoming clearer and clearer that those wide-eyed acolytes in Bush's "Town Hall" are hand-picked brown-nosers who would make even Kim Jong-Il feel a little bit patronised.

Within the blue-chip index, 5 stocks rose, the biggest gainers being Pfizer (PFE, +0.95% to $27.71) and Citigroup (C, +0.77% to $45.75), which accounted for 5 Dow points between them. Losers in the Dow numbered 25 and were led by International Business Machines (IBM, -8.30% to $76.70) after not-so-Big-anymore Blue missed earnings expectations by 6c a share. Exxon Mobil (XOM, -4.36% to $56.19) was the other big loser, with these two stocks contributing -70 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 449.9m shares to 163.5m.

The broader S&P500 slid 19.43 points (1.67%), to end the session at 1142.62. Within the index, gainers numbered 41, while 457 S&P500 stocks fell for the day. Volume was tilted 6.2:1 in favour of the losers with 2419.78 million units traded in the losers as compared with 389.18 million traded in the winners .

The Nasdaq Composite shed 38.56 points (1.98%), to close at 1908.15, while larger-cap technology issues fared worse with the Nasdaq100 losing 32.54 points (2.26%), to end at 1408.59 points. Within the tech benchmark, gainers numbered 15, while 85 Nasdaq100 stocks fell for the day. Volume was tilted 10.4:1 in favour of the losers with 1121.84 million traded in the losers compared to 107.55 million in the winners .

NYSE Volume was super-chunky, with 2.69 billion shares changing hands, while Nasdaq Volume was super-chunky (over 2 bill), with 2.38 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10087.51-191.24-1.86%
Nasdaq Composite1908.15-38.56-1.98%
NYSE Volume2.69bn--
Nasdaq Volume2.38bn--


My 9-stock "bellwethers" group fell by an average of 2.44%. The GSEs (Fannie and Freddie) were less badly affected than IBM and CSCO - thanks largely to the massive agency-backed repurchase operation.

  • General Electric (GE) +$0.25 (0.7%) to $35.75;
  • Citigroup (C) +$0.35 (0.77%) to $45.75;
  • Wal Mart (WMT) -$0.26 (0.54%) to $47.70;
  • I.B.M. (IBM) -$6.94 (8.3%) to $76.70;
  • Intel (INTC) -$0.37 (1.65%) to $22.12;
  • Cisco Systems (CSCO) -$0.61 (3.43%) to $17.20;
  • eBay (EBAY) -$1.02 (3.09%) to $31.97;
  • Fannie Mae (FNM) -$1.87 (3.33%) to $54.21; and
  • Freddie Mac (FRE) -$1.97 (3.14%) to $60.70.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 2489 to 768, for a single-day A/D reading of -1721; and Nasdaq losers exceeded gainers by 2337 to 735. The 10-day moving average of the A/D line fell to -634.0 on the NYSE, while the 10dma of the Nasdaq A/D fell to -788.1.

On the NYSE declining volume was greater than volume in advancing issues by 2246.3 to 434.8 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 2028.2 to 299.9 million shares.

17 NYSE-listed stocks rose to new 52-week highs, and 187 posted fresh 52-week lows, while on the Nasdaq there were 19 stocks that hit new 52-week highs, and 267 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)434.77299.87
Declining Volume (m)2246.292028.18
New Highs1719
New Lows187267

Market Sentiment Statistics
CBOE Volatility Index17.743.2122.09%
CBOE Nasdaq Volatility Index21.853.8421.32%
Equity Put-Call Ratio1.130.1717.71%
10-day PCR0.860.078.58%
SPX-VIX Ratio64.4-15.57-19.46%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 8.9 basis points to 4.627%.

The middle of the yield curve was broadly higher: five year yields fell to 3.915%, and ten-year yields fell to 4.271%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 basis points tighter at 14 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose 6 bp to to 69.0bp for 10-year AAA, and 5bp to 91.0bp for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were mixed with the AAA-A spread on 20-years 3.0 basis points tighter at 40.0 basis points and the 10-year AAA-A spread 2.0 basis points looser at 85.0 basis points.

Bonds should be the last place anybody wants to put money given the budgetary and external imbalances in the US, and the massive increase in forward debt issuance that will result from continuing war... and the trillions more debt issuance required if Shrub convinces the dull-witted US public that he should gut Social Security.

To my cynical way of thinking, the recent bond rally stems primarily from the fact that most finance market "operatives" are hopeless at mathematics. As a result, when they hit graduate school (which, in the US, gives an education about the same as a 3rd year university student), the syllabus must be tailored so that the "sums" are tractable.

Teaching using purely algebraic exposition is a terrible thing if you're dealing with people who think that the 3-equation PDE system "is" the economy. Likewise, teaching that all investment takes place in a 2-asset world (risky stocks and 'risk free' bonds) leaves the dull-witted with the impression that there are only two assets - when all that the course is trying to do, is give the poor "grad student" (who is really about as skilled as the average Australian undergraduate) a tractable analytical framework.

If your background at "college" (advanced high school) is a second-rate maths major, you don't have the theoretical underpinnings to understand that simple, tractable economic models are only used to teach the idea - you're not supposed to then go used them anywhere. It's like assuming - based on your first-year econometrics - that all relationships are linear )or log-linear) and monotonic. Applied Finance in the US paradigm is like a Grad Dip in Education; it takes kiddies whose undergrad results are so-so, puts them in a course where the syllabus enables those so-so skills to look smart, and turns out people with no idea, but a "graduate degree".


Treasury Yields
UST 13wk (yld)2.72400%
UST 2Y (yld)3.47-0.07-1.98%
UST 5Y (yld)3.915-0.079-1.98%
UST 10Y (yld)4.271-0.087-2%
UST 30Y (yld)4.627-0.089-1.89%

The Banks Index slid 0.82 points (0.86%), closing at 94.54; within the index,

  • Golden West Financial (GDW) -$1.88 (3.09%) to $59.03;
  • State Street (STT) -$1.02 (2.45%) to $40.68;
  • MBNA Corp (KRB) -$0.54 (2.25%) to $23.45;
  • PNC Financial Services (PNC) -$1.10 (2.18%) to $49.38; and
  • North Fork Bancorp (NFB) -$0.56 (2.04%) to $26.83.

The Broker-dealer Index declined 1.58 points (1.13%), to end the session at 138.08; the ticket clippers lined up as follows -

  • Legg Mason (LM) -$1.65 (2.3%) to $70.20;
  • Lehman Brothers (LEH) -$2.09 (2.25%) to $90.73;
  • Goldman Sachs (GS) -$2.00 (1.84%) to $106.49;
  • Morgan Stanley (MWD) -$0.84 (1.61%) to $51.49; and
  • Merrill Lynch (MER) -$0.85 (1.58%) to $53.09.

The Philadelphia SOX (Semiconductor) index dipped 13.07 points (3.3%), ending the day at 382.64

  • Broadcom (BRCM) -$1.57 (5.4%) to $27.48;
  • Advanced Micro Devices (AMD) -$0.81 (4.98%) to $15.45;
  • Applied Materials (AMAT) -$0.76 (4.98%) to $14.50;
  • Marvell Tech Group (MRVL) -$1.54 (4.47%) to $32.92; and
  • Novellus Systems (NVLS) -$1.08 (4.34%) to $23.78.

Gold & Silver Markets

Gold's price action continues to send little warning signals to my cerebral cortex (it's either Gold that's doing that, or I should stop eating cheese before I go to bed). Gold rose $0.90 (0.21%) to close at $424.90 per ounce - on a day when the USD fell by over half a percent, and the supposed "safe haven" - bonds - rose hard.

Gold Bugs Index shed 2.46 points (1.34%), closing at 180.56

  • Hecla Mining (HL) -$0.16 (3.38%) to $4.58;
  • Randgold Resources (GOLD) -$0.37 (3.25%) to $11.03;
  • Eldorado Gold (EGO) -$0.07 (2.83%) to $2.40;
  • Kinross Gold (KGC) -$0.15 (2.75%) to $5.30; and
  • Meridian Gold (MDG) -$0.38 (2.46%) to $15.04.

Silver fell by $0.04 (0.54%) to close at $7.02 per ounce. The Gold and Silver Index (XAU) lost 0.79 points (0.91%), to end the session at 86.39 points.

  • Kinross Gold (KGC) -$0.15 (2.75%) to $5.30;
  • Meridian Gold (MDG) -$0.38 (2.46%) to $15.04;
  • Gold Fields (GFI) -$0.20 (1.89%) to $10.40; and
  • Freeport McMoran (FCX) -$0.64 (1.84%) to $34.18.
Precious Metals and Indices
PHLX Gold and Silver Index86.39-0.79-0.91%
AMEX Gold BUGS Index180.56-2.46-1.34%

Oil Market

Oh well - having a crack at a potential bounce cost us $60 a pop, out of the couple of thousand that we trousered last week on the decline. Over the weekend I'll be distributing the whys and wherefores of the call - hopefully using my very own newfangled RantCharts (what I builded my very own self) to provide the pictures - and suggesting a likely scenario for next week.

Oil lost ground, shedding $0.70 per barrel, closing at $50.49 per barrel. The Oil and Gas Index (XOI) declined 26.36 points (3.18%), to 802.53

  • ConocoPhillips (COP) -$4.80 (4.58%) to $100.07;
  • Occidental Petroleum (OXY) -$3.03 (4.42%) to $65.50; and
  • Exxon Mobil (XOM) -$2.56 (4.36%) to $56.19.

The Oil service stocks (OSX) Index declined 3.23 points (2.43%), ending the day at 129.67

  • Halliburton (HAL) -$1.75 (4.13%) to $40.60;
  • Rowan Companies (RDC) -$1.07 (3.82%) to $26.92; and
  • Tidewater (TDW) -$1.12 (3.09%) to $35.16.
Energy Complex
Reuters CRB298.83-0.55-0.18%
Crude Oil Light Sweet50.49-0.7-1.37%
Heating Oil1.4599-0.02-1.49%
Natural Gas6.997-0.07-0.98%
Unleaded Gas1.4838-0.02-1.21%
AMEX Oil Index802.53-26.36-3.18%
Oil Service Index129.67-3.23-2.43%

Currency Markets

USD Exchange Rates
US Dollar Index84.48-0.59-0.69%
Australian Dollar0.7682-0.0019-0.25%
Swiss Franc1.2001-0.0136-1.12%
Canadian Dollar0.8017-0.0035-0.43%