Interdum stultus opportuna loquitur...

Wednesday, May 11, 2005

USRant: Big Afternoon Reversal...

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Markets are strange creatures; in their unfettered form they are beautiful and a bit wild. Sort of like a mountain lion, or a grizzly bear. Their power lies in the ability to allocate resources to the highest-value alternative - where 'highest value' is determined through the process of 'tatonnement' between demanders and suppliers of labour, capital, and goods. Capital and Labour exchange work value for output value, and the whole whirring process results in... widgets. (If you're studying trade, it also apparently results in wine and cloth).

Then what happens - at least in historical experience - is that some bunch of lurkers finds a way of confiscating part of the bounty created by this beautiful process. They demand a 'cut', operating the same way as a Mafia protection racket: if you don't pay up, they send the boys around and kidnap you and hold you hostage.

From there, bureaucracies burgeon and the entire system descends into a shadow of its former self - full of managerialism, corruption and third-best decision-making designed to enrich political patrons at the expense of the broader economy.

That's why, when their political cronies are threatened, the modern 'pseudo-markets' react badly. What I said yesterday about the benefits to markets of the sudden demise of all politicians, is actually a long run outcome. In the short run, there would be a massive downdraft as major corporations (particularly US media, energy and defence corporations) concluded that their days of siphoning off billions and billions of tax dollars were over.

During today's US session, and aircraft went off course near Washington: Shrubbery shifted his sorry little cheerleader faux-macho arse to a bunker. Equity markets dropped... was this the end of the gravy train for Halliburton, Bechtel, and General Dynamics?

As it turns out, nothing happened; no politicians were consumed in a fireball of death... which, by the way, should be mandatory for the children of any politician who sends his 'defence' forces outside of his national boundary. If the Prime Minister was required to sacrifice his kids - with 100% probability - in order to wage war, do you think we would have intervened in VietNam? The decision would have been taken with a great deal more gravitas.

Hell, I'd line up the 'defence' Minister's kiddies as well. Build a big-ass bonfire, into which the children of all pro-war politicians would be thrown. Then spey the offending politicians to prevent them from replacing the kiddies - so that the loss felt by those who lose kin in war is also felt by pro-war politicians, for the rest of their days. It's the only way to teach the parasitic vermin that resource-capture by conquest is inefficient, and that wealth transfer to cronies will simply not be tolerated. And you can bet your bottom dollar that the wives of politicians would suddenly become a whole lot less interested in how war makes their flaccid pathetic hubby feel. Make them send their children to die as they send other people's children to die. And if they don't have children, use wives, nephews, mothers... take people of value to the politician in question, and wipe them out.

How many wars do you think would have been averted if that discipline was followed? Sure, Germany would now own the Sudetenland, but it was theirs originally anyhow. And plus, no WWI means no Hitler (and no Stalin - who was waaaay worse). Hundreds of millions of innocent men, women and children died during the 20th century in wars that were fought by political choice.


Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $11billion, overnight repurchase entirely in T-backed collateral. That's a big sucker, but at 10 a.m. the sole thing on the market's mind was that silly plane...

Major US Indices

After early plane-induced weakness, the Dow Jones Industrial Average rallied all afternoon, and eventually gained 19.14 points (0.19%), closing out the day at 10300.25 points (note: a second data source says 10296 was the closing print). The index hit an intraday high of 10311.12 with 25 minutes to go in the session, which amounted to a 127 point rally off the low (10184.9) which was set at 12:07 p.m. NY time. So a 120-odd point rally in just over 2 hours, just because no politicians were going to get their comeuppance. How odd.

Within the blue-chip index, 18 stocks rose, the biggest gainers being United Technology (UTX, +1.99% to $103.97) and Caterpillar (CAT, +1.39% to $90.90), which accounted for 24 Dow points between them. Losers in the Dow numbered 12 and were led by General Motors (GM, -1.68% to $31.00) and Merck (MRK, -1.12% to $33.50), with these two stocks contributing -7 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 234.7m shares to 81.9m.

The broader S&P500 posted a rise of 4.89 points (0.42%), to 1171.11. Within the index, gainers numbered 335, while 155 S&P500 stocks fell for the day. Volume was tilted 2.2:1 in favour of the winners with 1183.60 million units traded in the winners as compared with 544.70 million traded in the losers .

Over at Times Square, the Nasdaq Composite rose 8.78 points (0.45%), to close at 1971.55, while larger-cap technology issues fared better with the Nasdaq100 adding 9.19 points (0.63%), to end at 1459.55 points. Within the tech benchmark, gainers numbered 71, while 28 Nasdaq100 stocks fell for the day. Volume was tilted 2.9:1 in favour of the winners with 581.36 million traded in the winners compared to 203.52 million in the losers .

NYSE Volume was solid-to-chunky, with 1.8 billion shares changing hands, while Nasdaq Volume was nicely above its recent average, with 1.75 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10300.2519.140.19%
Nasdaq Composite1971.558.780.45%
NYSE Volume1.8bn--
Nasdaq Volume1.75bn--


My 9-stock "bellwethers" group rose by an average of 0.84%

  • General Electric (GE) +$0.36 (1%) to $36.19;
  • Citigroup (C) +$0.32 (0.69%) to $46.70;
  • Wal Mart (WMT) -$0.12 (0.25%) to $48.60;
  • I.B.M. (IBM) -$0.02 (0.03%) to $73.28;
  • Intel (INTC) +$0.10 (0.41%) to $24.77;
  • Cisco Systems (CSCO) +$0.34 (1.87%) to $18.55;
  • eBay (EBAY) +$0.47 (1.44%) to $33.22;
  • Fannie Mae (FNM) +$1.01 (1.85%) to $55.67; and
  • Freddie Mac (FRE) +$0.38 (0.61%) to $62.74.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1842 to 1439 for a single-day A/D reading of 403; and Nasdaq losers exceeded gainers by 1550 to 1492. The 10-day moving average of the A/D line rose to 239.7 on the NYSE, while the 10dma of the Nasdaq A/D fell to -41.1.

NYSE advancing volume exceeded volume in decliners by 1040.9 to 716.2 million shares; Nasdaq advancing volume was greater than volume in decliners by 1092.8 to 571.4 million shares.

66 NYSE-listed stocks rose to new 52-week highs, and 68 posted fresh 52-week lows, while on the Nasdaq there were 45 stocks that hit new 52-week highs, and 95 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1040.931092.77
Declining Volume (m)716.23571.4
New Highs6645
New Lows6895

Market Sentiment Statistics
CBOE Volatility Index14.45-0.46-3.09%
CBOE Nasdaq Volatility Index17.87-0.24-1.33%
Equity Put-Call Ratio0.750.2241.51%
10-day PCR0.720.011.01%
SPX-VIX Ratio812.833.62%

Bond Market Analysis

Yesterday's thoughts about getting out of the short 30-year with whatever gain could still be had, turned out to be sound. When the major banks' political underwriters were under threat, bonds spiked somewhat - getting as high as 115 & 15/32. Still, the day session opened at 114 & 27/32, which means that even slowpokes who waited until the day session open to get out, could do so and still keep about an eighth of the peak profits of the position.

After the news that the schemers and parasites within the Beltway were safe, bonds gave back all of their spike - eventually closing a little below where they opened. The yield on the benchmark 30-year Treasury bond shed 2.9 bps to 4.549%.

The middle of the yield curve was broadly higher: five year yields fell to 3.903%, and ten-year yields fell to 4.202%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 4.0 bps tighter at 7.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 52.0 bps for 10-year AAA, and 82.5 bps for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were broadly wider with the AAA-A spread on 20-years 12.0 bps wider at 54.0 basis points and the 10-year AAA-A spread 3.0 bps wider at 9.0 bps.

Treasury Yields
UST 13wk (yld)2.80200%
UST 2Y (yld)3.660.010.27%
UST 5Y (yld)3.903-0.015-0.38%
UST 10Y (yld)4.202-0.02-0.47%
UST 30Y (yld)4.549-0.029-0.63%

The Banks Index posted a rise of 0.4 points (0.41%), to 97.85; within the index,

  • Northern Trust (NTRS) +$0.55 (1.21%) to $46.02;
  • Wachovia (WB) +$0.53 (1.03%) to $51.96;
  • Zions Bancorp (ZION) +$0.68 (0.96%) to $71.46;
  • State Street (STT) +$0.40 (0.86%) to $46.78; and
  • BB&T Corp (BBT) +$0.33 (0.84%) to $39.76.

The Broker-dealer Index rose 1.45 points (1.02%), closing at 143.5; the ticket clippers lined up as follows -

  • Charles Schwab (SCH) +$0.29 (2.7%) to $11.05;
  • Ameritrade (AMTD) +$0.34 (2.53%) to $13.76;
  • Goldman Sachs (GS) +$1.64 (1.61%) to $103.75;
  • Merrill Lynch (MER) +$0.66 (1.23%) to $54.12; and
  • Bear Stearns (BSC) +$1.11 (1.17%) to $95.60.

The Philadelphia SOX (Semiconductor) index advanced 1.44 points (0.37%), to 395.87

  • Teradyne (TER) +$0.28 (2.5%) to $11.50;
  • Freescale Semiconductors (FSL-B) +$0.26 (1.36%) to $19.35;
  • Marvell Tech Group (MRVL) +$0.37 (1.09%) to $34.35;
  • National Semiconductors (NSM) +$0.17 (0.88%) to $19.59; and
  • Texas Instruments (TXN) +$0.22 (0.85%) to $26.10.

Gold & Silver Markets

Gold rose $0.40 (0.09%) to close at $427.80 per ounce. It didn't even get any 'safety' bid when the off-course aircraft was the 'booga booga' of the day.

The Gold Bugs Index lost 2 points (1.1%), to 179.95

  • Hecla Mining (HL) -$0.17 (3.53%) to $4.64;
  • Eldorado Gold (EGO) -$0.08 (3.35%) to $2.31;
  • Meridian Gold (MDG) -$0.52 (3.16%) to $15.91;
  • Kinross Gold (KGC) -$0.13 (2.38%) to $5.33; and
  • Agnico Eagle (AEM) -$0.24 (1.88%) to $12.51.

Silver fell by $0.04 (0.56%) to close at $7.09 per ounce. The Gold and Silver Index (XAU) lost 0.81 points (0.96%), at 83.36 points.

  • Meridian Gold (MDG) -$0.52 (3.16%) to $15.91;
  • Placer Dome (PDG) -$0.39 (2.87%) to $13.20;
  • Kinross Gold (KGC) -$0.13 (2.38%) to $5.33; and
  • Agnico Eagle (AEM) -$0.24 (1.88%) to $12.51.
Precious Metals and Indices
PHLX Gold and Silver Index83.36-0.81-0.96%
AMEX Gold BUGS Index179.95-2-1.1%

Oil Market

Oil lost ground, shedding $1.43 per barrel, closing at $50.30 per barrel. Inventory data was worse than expected, but still showed an increase of 2.4 million barrels for the week. Gasoline inventories are 5% below their seasonal average though - I would keep an eye out for a sharp increase in gasoline prices over the next couple of months. Perhaps the prevailing hypothesis is that people can't afford to go on their usual long-drive vacations... but lack of affordability hasn't been an issue in the past, so why would things change now?

The Oil and Gas Index (XOI) gained 3.4 points (0.41%), at 830.68

  • Occidental Petroleum (OXY) +$1.49 (2.16%) to $70.46;
  • ConocoPhillips (COP) +$1.08 (1.03%) to $105.98; and
  • Unocal (UCL) +$0.48 (0.86%) to $56.38.

The Oil service stocks (OSX) Index gained 0.17 points (0.13%), to 132.48

  • Halliburton (HAL) +$0.44 (1.04%) to $42.61;
  • Nabors Industries (NBR) +$0.45 (0.82%) to $55.26; and
  • Smith International (SII) +$0.36 (0.62%) to $58.85.
Energy Complex
Reuters CRB300.95-0.49-0.16%
Crude Oil Light Sweet50.3-1.43-2.76%
Heating Oil1.4035-0.04-2.87%
Natural Gas6.66-0.03-0.45%
Unleaded Gas1.4744-0.03-1.84%
AMEX Oil Index830.683.40.41%
Oil Service Index132.480.170.13%

Currency Markets

USD Exchange Rates
US Dollar Index84.890.420.5%
Australian Dollar0.7744-0.0018-0.23%
Swiss Franc1.20590.00470.39%
Canadian Dollar0.8012-0.0068-0.84%