Interdum stultus opportuna loquitur...

Wednesday, May 04, 2005

USRant: Good Money After Bad...

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

To explain today's rally, you apparently only need one word. Kerkorian. Sounds Armenian, but I'm sure GM appreciates the propaganda value of the guy's well-hyped announcement. I'm sure Buffett does the same sort of thing (NOT!!) - it is stupid and hubristic (and smells a little desperate) to tell the world you're going to buy a huge lock of a specific stock at a 10% premium to its trading price before you do so, as the stock makes a new 10-year low...

Federal Reserve Open Market Operations

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

  • a $4.5billion, overnight repurchase entirely in T-backed collateral.

Major US Indices

The Yanks love a cult of personality - they think Greenspan has more than half a brain, and a decent chunk of them think Bush is not an inbred semi-latent-bisexual bake-head who couldn't organise a pissup in a brewery without a taxpayer bailout or Saudi funding.

But who in the name of Odin is Kirk Kerkorian? You see, he's the reason for the rally - particularly in GM.

Kerkorian owns a huge slug of GM (now that right there ought to disqualify his investment opinion - why have a huge slug of your wealth in an industry that's dying and which doesn't make any money in the process?). Last night, in true "Prince Al-Waleed" style, he announced that he's going to buy more - doubling his stake to about 9%.

Maybe he's getting divorced and wants to look like a nutcase so that he gets a larger share of the pie. Maybe he's getting divorced and wants the pie to be much, much smaller. Maybe he;s up to his armpits in the stock of a completely destitute company (which needs to issue more bonds soon) and so he is doing what he needs to in order to try and reduce the damage to his net worth.

So at a time when GM's sales fell 7.7% in a month, at a time when GM's debt is about to be downgraded even by the "horse has bolted' hacks at Moody's and S&P, at a time when GM has to issue a bunch of new debt real soon... some bloke who already owns 4-odd percent of the stock (almost $1 billion worth) indicates the he's a buyer of a large chuck of stock at a premium to the prior closing price? Give me a break!

Unless Kerkorian acquired his GM stock more than 10 years ago, he's underwater big time - because GM's stock price peaked in 1999 and recently set a 10-year low.

However dopey the decision is, it doesn't matter - Yanks will follow a celebrity investor that they've never heard of, so long as CNBC can refer to the celebrity as a "billionaire investor".

Madness. It reminds me of an Australian fund manager who - when asked by a researcher why he had One.Tel in an imputation portfolio, said "Packer's in it. Murdoch's in it. That's all I need to know."... and this schlub was managing other people's money (not for long after that episode though). As a researcher I had never had a very sanguine view about these hacks anyway, but that was the absolute topper.

Regardless of the stupidity of Kerkorian's declaration of love for his GM stock, the market's advance was pretty damned broad today.

The Dow Jones Industrial Average posted a rise of 127.69 points (1.24%), closing out the day at 10384.64 points. The index hit an intraday high of 10392.47 just after 3:30 p.m., and its low (10255.25) was set at the open.

Within the blue-chip index, 27 stocks rose, the biggest gainers being General Motors (GM, +18.11% to $32.80) and Caterpillar (CAT, +2.10% to $89.42), which accounted for 51 Dow points between them. Losers in the Dow numbered 2 and were led by Johnson & Johnson (JNJ, -0.74% to $68.22) and Microsoft (MSFT, -0.59% to $25.21), with these two stocks contributing -5 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 317.6m shares to 88.6m.

The broader S&P500 rose 14.48 points (1.25%), ending the day at 1175.65. Within the index, gainers numbered 444, while 49 S&P500 stocks fell for the day. Volume was tilted insanely, 5.6:1 in favour of the winners with almost 1.8 billion units traded in the winners as compared with 322.54 million traded in the losers .

Over at Times Square, the Nasdaq Composite posted a rise of 29.16 points (1.51%), to close at 1962.23, while larger-cap technology issues fared better with the Nasdaq100 adding 24.59 points (1.72%), to end at 1452.2 points. Within the tech benchmark, gainers numbered 88, while 11 Nasdaq100 stocks fell for the day. Volume was tilted 4.3:1 in favour of the winners with 725.08 million traded in the winners compared to 166.93 million in the losers .

NYSE Volume was super-chunky, with 2.31 billion shares changing hands, while Nasdaq Volume was chunky, with 1.88 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10384.64127.691.24%
Nasdaq Composite1962.2329.161.51%
NYSE Volume2.31bn--
Nasdaq Volume1.88bn--


My 9-stock "bellwethers" group rose by an average of 2.11% - the principal causes being big bounces in eBay and the two mortgage toxic waste dumps, Fannie and Freddie.

  • General Electric (GE) +$0.10 (0.28%) to $36.20;
  • Citigroup (C) +$0.17 (0.36%) to $46.97;
  • Wal Mart (WMT) +$0.05 (0.1%) to $48.45;
  • I.B.M. (IBM) +$0.61 (0.8%) to $77.08;
  • Intel (INTC) +$0.36 (1.52%) to $24.11;
  • Cisco Systems (CSCO) +$0.34 (1.96%) to $17.65;
  • eBay (EBAY) +$2.30 (7.15%) to $34.47;
  • Fannie Mae (FNM) +$1.95 (3.6%) to $56.05; and
  • Freddie Mac (FRE) +$1.96 (3.18%) to $63.57.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2543 to 788 for a single-day A/D reading of 1755; that's just absolute whackery if the only cause was Kerkorian's attempt to halt the slide in GM's stock and bond prices. Nasdaq gainers trumped losers by 2095 to 958. The 10-day moving average of the A/D line rose to 419.0 on the NYSE, while the 10dma of the Nasdaq A/D rose to 30.5.

NYSE advancing volume exceeded volume in decliners by 1958.4 to 316.5 million shares; Nasdaq advancing volume was greater than volume in decliners by 1453.3 to 391.3 million shares.

76 NYSE-listed stocks rose to new 52-week highs, and 30 posted fresh 52-week lows, while on the Nasdaq there were 51 stocks that hit new 52-week highs, and 103 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1958.391453.29
Declining Volume (m)316.54391.28
New Highs7651
New Lows30103

Market Sentiment Statistics
CBOE Volatility Index13.78-0.92-6.26%
CBOE Nasdaq Volatility Index18.32-1.81-8.99%
Equity Put-Call Ratio0.760.057.04%
10-day PCR0.7600.01%
SPX-VIX Ratio85.36.328.01%

Bond Market Analysis

Third time's a charm, right?

Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 8.2 bps to 4.585%. At one stage the 30-year bond future was down more than a point and a half - it got as low as 113 & 15/32, which means that the short position entry at 115 & 1/32 was showing a profit of 49 ticks (US$1531.25 on the initial margin of US$1688... 91%).

I said yesterday that the next crack ought to signal "Goodbye Mr Spalding", but yet again the bond managed to erase most of the intrasession gains on a short.

Again, there was an intraday bounce off the low (again, coinciding with an hourly oversold reading... just like each of the past 2 sessions). Again, the low occurred at a 'half' (i.e., within a tick or two of 16/32nds on a given handle). Again, the bounce was ferocious (over a point!!). Like I said, at turning points there is a great deal of inertia in the bond market which tends to result in sharp reactions to any move in the counter-trend direction. The bond market still thinks it's going up (obviously they didn't read the USRant last Friday).

So there have been three decent dips, each of which generated significant bankable profits; however if you simply held a short from 115 & 01/32 the position is up just 12 ticks ($375 per contract or 22.2%).

I noticed a story about the possibility of the re-issue of 30-years. They have not issued any new 30-years since 2001 (the last of the four years in which the US Government ran a surplus). If you look hard enough in the Investorweb archive, you will see that on the very day that Greenspan rabbitted on about the problems of securities pricing in the absence of a risk-free asset, I was excoriating him for his stupidity and saying that the surplus was (a) fiction; and (b) unlikely to last. Greenspan is such a hack.

The middle of the yield curve was mixed: five year yields fell to 3.862%, and ten-year yields fell to 4.186%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 2.0 bps wider at 11.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 56.0 bps for 10-year AAA, and 85.5 bps for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were unchanged with the AAA-A spread on 20-years stable at 41.0 basis points and the 10-year AAA-A spread stable at -1.0 bps.

Treasury Yields
UST 13wk (yld)2.79500%
UST 2Y (yld)3.6-0.02-0.55%
UST 5Y (yld)3.862-0.026-0.67%
UST 10Y (yld)4.18600%
UST 30Y (yld)4.5850.0821.82%

The Banks Index rose 1.33 points (1.36%), at 99.26; within the index,

  • Northern Trust (NTRS) +$1.49 (3.29%) to $46.76;
  • State Street (STT) +$1.24 (2.68%) to $47.49;
  • BB&T Corp (BBT) +$1.02 (2.57%) to $40.72;
  • North Fork Bancorp (NFB) +$0.68 (2.41%) to $28.84; and
  • Regions Financial (RF) +$0.79 (2.35%) to $34.40.

The Broker-dealer Index posted a rise of 4.96 points (3.69%), at 139.38; the ticket clippers lined up as follows -

  • Legg Mason (LM) +$8.92 (12.64%) to $79.47;
  • Bear Stearns (BSC) +$3.82 (4.08%) to $97.40;
  • Ameritrade (AMTD) +$0.42 (4.05%) to $10.78;
  • Merrill Lynch (MER) +$1.94 (3.69%) to $54.54; and
  • A G Edwards (AGE) +$1.39 (3.55%) to $40.49.

The Philadelphia SOX (Semiconductor) index added 9.3 points (2.42%), to 394.38

  • Broadcom (BRCM) +$1.54 (5.11%) to $31.69;
  • Micron Technology (MU) +$0.38 (3.92%) to $10.08;
  • Maxim Integrated (MXIM) +$1.39 (3.77%) to $38.28;
  • Marvell Tech Group (MRVL) +$0.95 (2.86%) to $34.12; and
  • National Semiconductors (NSM) +$0.55 (2.86%) to $19.79.

Gold & Silver Markets

Gold added $2.30 (0.28%) to close at $430.70 per ounce. I know that doesn't line up with yesterday's price, but that's because everything rolled over to the June contract as of today. The change and percentage calculations are correct because I checked them by hand.

I'm starting to get a trifle irked about Gold's technical action. Examining a daily chart, the thing is now showing some nascent oversold condition (my favourite oscillator - the Williams %R - dipped just barely to oversold levels two session ago). I think I will have to examine this week's Commitment of Traders reports and look hard at the open interest configuration of the major Gold stocks. Gold is priming for a move, and my guess is that the move will be down - so far that's been reasonably confirmed by the recent behaviour of Gold in the face of a failed rally in the US dollar. (Remember a week or so ago I said that weakness in both Gold and USD was a conundrum that I found hard to reconcile? I still find it hard to reconcile, but it's been happening).

The Gold Bugs Index gained 5.12 points (2.83%), to 185.83

  • Randgold Resources (GOLD) +$0.83 (6.74%) to $13.14;
  • Coeur d'Alene (CDE) +$0.17 (5.28%) to $3.39;
  • Golden Star (GSS) +$0.13 (5.06%) to $2.70;
  • Iamgold (IAG) +$0.29 (4.8%) to $6.33; and
  • Meridian Gold (MDG) +$0.72 (4.57%) to $16.48.

Silver rose $0.13 (1.91%) to close at $6.98 per ounce. The Gold and Silver Index (XAU) gained 1.71 points (2.02%), to 86.28 points.

  • Meridian Gold (MDG) +$0.72 (4.57%) to $16.48;
  • Placer Dome (PDG) +$0.50 (3.73%) to $13.91;
  • Goldcorp (GG) +$0.42 (3.15%) to $13.77; and
  • Agnico Eagle (AEM) +$0.39 (2.94%) to $13.65.
Precious Metals and Indices
PHLX Gold and Silver Index86.281.712.02%
AMEX Gold BUGS Index185.835.122.83%

Oil Market

Oil was firmer despite a 2.6 million barrel increase in crude reserves (more than double the expected increase) and a 2.2 million barrel increase in gasoline inventories. Just after the crude inventory numbers, dills who get their investment guidance from journalists took Crude down below $49.

The journo-hovno version of events was supposed to include a big inventory build and a further decline in Crude. Well, inventories rose quite decently, and the market did what it always does... waited for nuffnuffs to set themselves up, then ripped them a new bunghole.

Oil reversed hard within ten minutes of the crude inventories report. The front-month contract added $2 a barrel, in under 2 hours. Then - with some upside breakout traders in the firing line, the thing dropped over a dollar in about an hour and a half.

At the end of the session, it had gained $1.04 per barrel on a close-to-close basis, finishing the session at $50.46 per barrel. It's the same old story - the initial reaction to a datapoint is almost always designed to sucker in 'breakout' traders.

The Oil and Gas Index (XOI) added 8.61 points (1.06%), at 821.76

  • Sunoco (SUN) +$1.80 (1.87%) to $98.20;
  • Marathon Oil (MRO) +$0.79 (1.69%) to $47.50; and
  • Amerada Hess (AHC) +$1.53 (1.65%) to $94.45.

The Oil service stocks (OSX) Index gained 2.73 points (2.12%), at 131.75

  • National Oilwells/Varco (NOV) +$1.59 (3.96%) to $41.79;
  • Rowan Companies (RDC) +$0.79 (2.97%) to $27.37; and
  • Smith International (SII) +$1.52 (2.63%) to $59.42.
Energy Complex
Reuters CRB300.971.280.43%
Crude Oil Light Sweet50.461.042.1%
Heating Oil1.460.021.74%
Natural Gas6.6530.142.12%
Unleaded Gas1.47850.021.71%
AMEX Oil Index821.768.611.06%
Oil Service Index131.752.732.12%

Currency Markets

USD Exchange Rates
US Dollar Index83.99-0.43-0.51%
Australian Dollar0.78050.00620.8%
Swiss Franc1.1917-0.005-0.42%
Canadian Dollar0.80240.00380.48%