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Wednesday, May 18, 2005

USRant: Repo Trumps Dud Data

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Sometimes it doesn't pay to think too hard about why 'investors' do stupid things. It provides amusing anecdotes, but it does my head in. I'm a bit like Bob Geldof: little things tend to make me incandescent with rage when they are being done by the legion of smart-ass middle-men who live parasitically off the economy. When these aforementioned smart-asses make their living in a way designed specifically to impoverish or otherwise harm, the most vulnerable in society, I get 'ropable' (perhaps that should be "rope-able"... I'm never sure).

Plus, I can't help but like anyone who would use the Dandenong Salute (call the other guy a f--king c--t) to both James Wolfensohn (head of the World Bank) and Mengistu Haile Mariam (Ethiopian Military dictator). It speaks volumes about Geldof's passion.

It also indicates says that Geldof doesn't give a rat's arse whether someone is black, white, or brindle: anyone trying to bullshit Sir Bob is likely to get snotted. I wish that journalists would operate like that: Greenspan would be whimpering under a desk somewhere covered in bruises, and Tony Blair would have been smacked so silly that he probably would have died of a brain haemorrhage. George Bush would never have been born, because someone would have kicked his Mazi-sympathising grandfather to death. Righteous rage has a place when it is genuinely righteous (i.e., when it is operating using Rawlsian sensibilities).

Examine last night's data: PPI above expectations (even for those who use no food or energy); Industrial Production contracted and Capacity Utilisation fell; Redbook and ICSC-UBS surveys agreed that chain store sales fell. Housing Starts rose, but that's like saying "AMZN was up" in 1999/2000. Greenspan and his band of Soviet-style central planners did their utmost to ensure that their partners-in-destruction had plenty of sauce to juice the market up and give the masses yet another false dawn...

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed a single repurchase operation - a $9billion, overnight repurchase entirely in Treasury-backed collateral.

There is clearly something amiss; yesterday there was a $12 billion repurchase ($10 bill in T-backed)... today a $9 billion job, all in T-backed.

The Fed often does big T-backed repo when the economic data is sucky, and last night was a good example. More interesting is that for a good chunk of the session, any speculative long exposure taken at 10 a.m. NY time, looked like a dud... the S&P and Dow went nowhere in net terms between 10 a.m. and 2:30 p.m., and in fact by 10:30 the S&P had gone backwards by almost 4 points.

That (it turns out) is because the repurchase was done almost an hour later than usual - so the surge that almost always follows a $9 bill repo, came at 11 a.m. instead of 10.

Major US Indices

After trading between 10250 and 10210 for the first four hours of the session, the Dow Jones Industrial Average surged in the last two hours and eventually closed with a gain of 79.59 points (0.78%), closing out the day at 10331.88 points. The index tested 10250 several times during the session, failing each time - until just before 2:30 p.m. NY time, when it broke out while on a 100-point tear. The index hit an intraday high of 10336.9 ten minutes before the close. Even breakout traders get a gain once in a while...

The 'reason' for the big burst in the afternoon was that the Bush Adminsitration's lickspittles in the Treasury Department had a moan about China's pegged currency. The US government is keen to try and make out that the huge US trade deficit is somebody else's fault, so they blame the Chinese. It's another step towards imposing trade barriers - always the last refuge of the politician whose economy is dying in the arse.

Treasury didn't say that China was manipulating its currency (of course it is, you fucking morons... that's what pegged MEANS), but it said that it would say it unless China moved to a more flexible system

Do you think China gives a flying fuck what the Yanks say? If I was China I would dump the crap out of US Treasuries, and say - "There you go, you round-eyed fuckheads... manage that."

Incandescent? You bet your life.

Within the blue-chip index, 24 stocks rose, the biggest gainers being Home Depot (HD, +3.99% to $38.86) and Hewlett Packard (HPQ, +2.57% to $21.55), which accounted for 15 Dow points between them. Losers in the Dow numbered 6 and were led by Merck (MRK, -1.32% to $33.01) and Honeywell (HON, -0.93% to $36.19), with these two stocks contributing -6 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 244m shares to 101.7m.

The broader S&P500 advanced 8.11 points (0.7%), ending the day at 1173.8. Within the index, gainers numbered 391, while 99 S&P500 stocks fell for the day. Volume was tilted 2.1:1 in favour of the winners with 1180.44 million units traded in the winners as compared with 560.48 million traded in the losers .

Over at Times Square, the Nasdaq Composite advanced 9.72 points (0.49%), to close at 2004.15, while larger-cap technology issues fared better with the Nasdaq100 adding 9.46 points (0.64%), to end at 1490.14 points. Within the tech benchmark, gainers numbered 69, while 27 Nasdaq100 stocks fell for the day. Volume was tilted 1.0:1 in favour of the winners with 350.47 million traded in the winners compared to 334.56 million in the losers .

NYSE Volume was pretty chunky, with 1.89 billion shares changing hands, while Nasdaq Volume was about average, with 1.56 billion shares finding new homes.

Major Market Statistics
Dow Jones Industrial Average10331.8879.590.78%
Nasdaq Composite2004.159.720.49%
NYSE Volume1.89bn--
Nasdaq Volume1.56bn--


My 9-stock "bellwethers" group rose by an average of 0.38%

  • General Electric (GE) +$0.22 (0.61%) to $36.46;
  • Citigroup (C) +$0.36 (0.77%) to $47.16;
  • Wal Mart (WMT) -$0.22 (0.47%) to $47.00;
  • I.B.M. (IBM) -$0.05 (0.07%) to $74.29;
  • Intel (INTC) +$0.37 (1.46%) to $25.70;
  • Cisco Systems (CSCO) -$0.03 (0.16%) to $19.06;
  • eBay (EBAY) -$0.10 (0.28%) to $35.28;
  • Fannie Mae (FNM) +$0.33 (0.6%) to $55.58; and
  • Freddie Mac (FRE) +$0.59 (0.94%) to $63.29.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2066 to 1206 for a single-day A/D reading of 860; Nasdaq gainers trumped losers by 1675 to 1415. The 10-day moving average of the A/D line rose to 398.3 on the NYSE, while the 10dma of the Nasdaq A/D rose to 109.5.

NYSE advancing volume exceeded volume in decliners by 1343.3 to 465.9 million shares; an almost ridiculous tilt on a day when the economic news was uniformly unfriendly. The NYSE has been behaving more like the Nasdaq recently - wild gyrations in both prices and internals. Nasdaq advancing volume was greater than volume in decliners by 879.3 to 636.3 million shares.

59 NYSE-listed stocks rose to new 52-week highs, and 62 posted fresh 52-week lows, while on the Nasdaq there were 42 stocks that hit new 52-week highs, and 77 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1343.25879.27
Declining Volume (m)465.85636.31
New Highs5942
New Lows6277

Market Sentiment Statistics
CBOE Volatility Index14.57-1.11-7.08%
CBOE Nasdaq Volatility Index18.28-0.49-2.61%
Equity Put-Call Ratio0.770.2137.5%
10-day PCR0.700.022.69%
SPX-VIX Ratio80.66.228.37%

Bond Market Analysis

Bonds rose at the long end, despite the PPI being considerably worse than expected. The yield on the benchmark 30-year Treasury bond shed 1.7 bps to 4.473%.

The middle of the yield curve was broadly higher: five year yields fell to 3.811%, and ten-year yields fell to 4.117%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 3.0 bps wider at 11.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 54.0 bps for 10-year AAA, and 78.0 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 increasing 7.0 bps to 61.0 basis points and the 10-year AAA-A spread 6.0 bps wider at 6.0 bps.

Treasury Yields
UST 13wk (yld)2.81200%
UST 2Y (yld)3.5800%
UST 5Y (yld)3.811-0.009-0.24%
UST 10Y (yld)4.117-0.008-0.19%
UST 30Y (yld)4.473-0.017-0.38%

The Banks Index advanced 0.63 points (0.64%), to end the session at 98.75; within the index,

  • JPMorganChase (JPM) +$0.47 (1.35%) to $35.21;
  • Northern Trust (NTRS) +$0.56 (1.23%) to $46.26;
  • North Fork Bancorp (NFB) +$0.29 (1.05%) to $27.80;
  • M&T Bank Corp (MTB) +$1.06 (1.03%) to $104.47; and
  • State Street (STT) +$0.47 (1%) to $47.41.

The Broker-dealer Index rose 0.69 points (0.49%), closing at 142.44; the ticket clippers lined up as follows -

  • Ameritrade (AMTD) +$0.36 (2.64%) to $13.98;
  • Legg Mason (LM) +$0.86 (1.08%) to $80.21;
  • Charles Schwab (SCH) +$0.10 (0.9%) to $11.21;
  • E*Trade (ET) +$0.09 (0.75%) to $12.10; and
  • Lehman Brothers (LEH) +$0.48 (0.53%) to $90.21.

The Philadelphia SOX (Semiconductor) index advanced 3.45 points (0.84%), closing at 414.56

  • Altera (ALTR) +$0.64 (3.02%) to $21.83;
  • Marvell Tech Group (MRVL) +$0.75 (2.01%) to $38.13;
  • Teradyne (TER) +$0.23 (1.87%) to $12.55;
  • Micron Technology (MU) +$0.19 (1.83%) to $10.60; and
  • Texas Instruments (TXN) +$0.45 (1.67%) to $27.41.

Gold & Silver Markets

Gold fell by $1 (0.24%) to close at $418.80 per ounce. The next big test for the metal comes at about $410; do not expect $400 to provide support if $410 breaks (every thinly-capitalised nuffie on the planet will be buying for a bounce from $400, which is why it will drop like a rock if it gets down that far on this leg). In fact if $410 breaks, expect some consolidation for a little time, with a downward bias.

My gut tells me that the metal will seem to consolidate around $405 or a bit lower, and then will crack in a savage nuffie-massacre with an intraday swoosh downwards. As usual, it will be a terrific entry point for the long side. Prices below $390 are not beyond the realms of possibility.

The Gold Bugs Index rose 3.83 points (2.3%), at 170.29 points:

  • Freeport McMoran (FCX) +$1.42 (4.43%) to $33.50;
  • Harmony Gold (HMY) +$0.26 (4.23%) to $6.41;
  • Goldcorp (GG) +$0.47 (3.87%) to $12.62;
  • Glamis Gold (GLG) +$0.50 (3.81%) to $13.63; and
  • Coeur d'Alene (CDE) +$0.10 (3.61%) to $2.87.

Silver rose $0.09 (1.22%) to close at $7.05 per ounce. The Gold and Silver Index (XAU) gained 1.82 points (2.31%), to 80.55 points.

  • Durban Rooderpoert Deep (DROOY) +$0.04 (5.64%) to $0.73;
  • Freeport McMoran (FCX) +$1.42 (4.43%) to $33.50;
  • Harmony Gold (HMY) +$0.26 (4.23%) to $6.41; and
  • Goldcorp (GG) +$0.47 (3.87%) to $12.62.
Precious Metals and Indices
PHLX Gold and Silver Index80.551.822.31%
AMEX Gold BUGS Index170.293.832.3%

Oil Market

Oil was firmer, rising by $0.32 per barrel, closing at $48.99 per barrel. The Oil and Gas Index (XOI) advanced 9.12 points (1.16%), closing at 792.24.

  • ChevronTexaco (CVX) +$1.41 (2.82%) to $51.47;
  • ConocoPhillips (COP) +$2.12 (2.19%) to $98.90; and
  • Sunoco (SUN) +$1.66 (1.76%) to $96.07.

The Oil service stocks (OSX) Index rose 1.69 points (1.35%), at 127.07

  • Transocean (RIG) +$1.14 (2.58%) to $45.29;
  • National Oilwells/Varco (NOV) +$0.94 (2.3%) to $41.77; and
  • Halliburton (HAL) +$0.81 (1.99%) to $41.51.
Energy Complex
Reuters CRB294.0910.34%
Crude Oil Light Sweet48.990.320.66%
Heating Oil1.37250.021.29%
Natural Gas6.4910.030.46%
Unleaded Gas1.43520.031.97%
AMEX Oil Index792.249.121.16%
Oil Service Index127.071.691.35%

Currency Markets

Seems that a weakening economy - which becomes more and more obvious by the day - is no impediment to a continuation of the USD bounce. The US 'powers that be' are now fighting tooth and nail to try and prevent their little cash cow from going toes up, and for the moment they're probably glad that no effort if required to hold up the currency.

That said, this is a bounce, and nothing more: I've said it a hundred times - you can't be the world's biggest, dumbest, most bellicose moocher and expect to have the 'go to' currency. You can't saddle your future generations with mountains of debt so large that the interest payments start being unpayable, and expect your fiat to trump the currency of other, slightly more prudent economies. You can't go about the planet blowing the crap out of other people's children and expect everyone to send you their surplus capital so that your mall-dwellers can buy imported obesity drugs and little stickers for their vehicles.

Britain, Spain, Holland, Sparta, Carthage, Rome... there is a seemingly unending list of machines that has tried to dominate the planet by military acquisition of resources. Every one of them marched, shot and bombed their way to penury - because resource-acquisition by conquest is the single most expensive and least efficient mechanism that exists. Politicians use it so often because they're largely stupid and ignorant of history - but also because it appeals to their laziness... why works and trade for things, when you can send other people's children to take them by force? It's just the tax system on the international stage, as far as they're concerned...

USD Exchange Rates
US Dollar Index86.310.220.26%
Australian Dollar0.7549-0.0006-0.08%
Swiss Franc1.22520.00340.28%
Canadian Dollar0.79080.00320.41%