Interdum stultus opportuna loquitur...

Friday, June 10, 2005

USRant: Late Dow-Centric Surge...

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Foul whisperings are abroad - unnatural deeds do breed unnatural troubles: infected minds to their deaf pillows will discharge their secrets..."

I remember the first time I read those words - spoken by the Doctor in Macbeth as partial explanator of Lady Macbeth's psychotic episode in Act V.

In finance, there are several 'deeds' that are - to my way of thinking - manifestly unnatural:

  • central banking as it is currently practised (attempting to violate the market's time preferences through central planning);
  • the hagiography and hagiodolatry practiced with regard to a man with so few saleable skills that he had to become a bureaucrat (yes, Greensplatt - the man whose consulting firm went belly up as a result of his failure as a forecaster); and
  • the US T-bond and corporate bond market's sanguine acceptance of this new, strange "Carribbean Centre" scam being perpetrated (I allege) by the Federal Reserve.
Now we have the reprehensible Greenstain climbing on board the housing bubble bandwagon. This fills me with dread; Greensplatt's previous attempts at forecasting have been abysmal at all times on all instruments.

Being on the same side of the boat of this perennial lickspittle is something with which I am profoundly  uncomfortable. But if Brownstain is finally admitting to a red-hot housing market, he must have been briefed that the shit is about to hit the fan.

This leads me back to the Carribbean Financial Centres which have miraculously filled in the demand gap in the Treasury market (replacing rapidly-slowing demand from foreign central banks, most notably China and Japan). These are nothing more than 'off balance sheet financing' instruments for the US Government, and I suspect that they will be unable to conceal this for much longer; further slowing of Asian central bank purchases of Treasuries will mean that the growth in 'Carribbean Financial Centre' purchases will have to go parabolic (as if they're not already, having grown 94% this last year).

When governments are forced to perpetrate this sort of subterfuge in order to try and hold their mortgage markets together (and to hold together the massive leveraged-carry machine that feeds its bankers), you have a recipe for substantial "unnatural troubles". Think LTCM, increased by a factor of maybe 50 or 60. "Too Big To Fail" perhaps, but also too big to control properly.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed a single repurchase operation - a $3.25billion, 6-day repurchase entirely in Treasury-backed collateral. Oddly (as with yesterday's overnight tranche), the repo was struck at above the Fed Funds rate (FF) - indicating that someone on the demand side was desperate for the dough. Sure, it was only 1 basis point above FF, but given recent provision of repurchase agreements at 3-5 basis points below FF, and the fact that there was $45 billion in demand for repo (albeit at rates down to 2.93%), it's strange that the Fed didn't dole out more.

Major US Indices

A strange surge of late-day purchases centred on the Dow - particularly in Dow stocks with large stock prices. Remember, the Dow is price-weighted, so late-day buying in UTX - which drove it up a dollar in an hour - gave a very strong impetus to the index. Each $1 move in a Dow stock provides about 7.3 Dow points of movement to the index; a $1 move in HPQ is almost 4%, and is hard to achieve, whereas a $1 move in UTX and CAT are only about 1%... much easier to 'get done' in an hour.

Anyhow - as a result of this rather blatant afternoon manipulation, the Dow Jones Industrial Average scraped back into the plus column for the day, ending the week above 10500 as well. The Dow added 9.61 points (0.09%), closing out the day at 10512.63 points. The index hit an intraday high of 10538.64 exactly 15 minutes into the session, and then dropped to the low 10460s by the start of the lunchtime 'drag' period. After lunch it dipped again, setting its low at 10452.62 (let's call that "10450-ish") before the inexplicable strength in Dow stocks with large prices in the final hour.

Within the blue-chip index, 13 stocks rose, the biggest gainer was money-furnace General Motors (GM, +8.49% to $34.51) - supposedly on news of a breakthrough with its unions... how that will save GM is beyond me, unless the unions are agreeing to let their retired members get shafted when GM defaults on its pensions...

Hewlett Packard (HPQ, +3.25% to $23.50) also got a lift. GM and HPQ contributed 25 Dow points between them. Losers in the Dow numbered 17 and were led by Intel (INTC, -2.60% to $26.98) and United Technology (UTX, -0.95% to $104.93), with these two stocks contributing -13 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 212.1m shares to 113m. Yes, UTX fell for the day, but at one stage in mid-afternoon it trading at  $103.74.

The further you got away from the highly-manipulated Dow, the worse things looked.

The S&P500 dipped 2.82 points (0.23%), to end the session at 1198.11. Within the index, gainers numbered 197, while 293 S&P500 stocks fell for the day. Volume was tilted 1.8:1 in favour of the losers with 965.75 million units traded in the losers as compared with 538.31 million traded in the winners .

Over at Times Square, the Nasdaq Composite dipped 13.91 points (0.67%), to close at 2063, while larger-cap technology issues fared worse with the Nasdaq100 losing 18.44 points (1.2%), to end at 1521.02 points. Within the tech benchmark, gainers numbered 17, while 82 Nasdaq100 stocks fell for the day. Volume was tilted 6.3:1 in favour of the losers with 556.39 million traded in the losers compared to 88.99 million in the winners .

NYSE Volume was reasonable, with 1.64 billion shares changing hands, while Nasdaq Volume was about average, with 1.45 billion shares traded.

Major Market Statistics
Index Close Gain(Loss) %
Dow Jones Industrial Average 10512.63 9.61 0.09%
S&P500 1198.11 -2.82 -0.23%
Nasdaq Composite 2063 -13.91 -0.67%
Nasdaq100 1521.02 -18.44 -1.2%
NYSE Volume 1.64bn - -
Nasdaq Volume 1.45bn - -


My 9-stock "bellwethers" group fell by an average of 0.70%

  • General Electric (GE) -$0.16 (0.43%) to $36.63;
  • Citigroup (C) -$0.04 (0.08%) to $47.64;
  • Wal Mart (WMT) +$0.16 (0.33%) to $47.98;
  • I.B.M. (IBM) -$0.16 (0.21%) to $74.77;
  • Intel (INTC) -$0.72 (2.6%) to $26.98;
  • Cisco Systems (CSCO) -$0.23 (1.18%) to $19.24;
  • eBay (EBAY) -$0.58 (1.56%) to $36.63;
  • Fannie Mae (FNM) -$0.19 (0.33%) to $58.00; and
  • Freddie Mac (FRE) -$0.14 (0.22%) to $64.71.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1621 to 1609 for an evenly-poised single-day A/D reading of 12; and Nasdaq losers exceeded gainers by 1586 to 1420. The 10-day moving average of the A/D line fell to 295.6 on the NYSE, while the 10dma of the Nasdaq A/D fell to 41.1.

NYSE advancing volume exceeded volume in decliners by 802.9 to 797.1 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 958 to 458.7 million shares.

144 NYSE-listed stocks rose to new 52-week highs, and 24 posted fresh 52-week lows, while on the Nasdaq there were 88 stocks that hit new 52-week highs, and 35 which fell to fresh 52-week lows.

Market Breadth Statistics

NYSE Nasdaq
Advancers 1621 1420
Decliners 1609 1586
Advancing Volume (m) 802.89 458.69
Declining Volume (m) 797.11 958.01
New Highs 144 88
New Lows 24 35

Market Sentiment Statistics
Index Close Gain(Loss) %
CBOE Volatility Index 11.96 -0.12 -0.99%
CBOE Nasdaq Volatility Index 15.87 0.6 3.93%
Equity Put-Call Ratio 0.36 -0.36 -50%
10-day PCR 0.65 -0.07 -10.05%
SPX-VIX Ratio 100.2 0.76 0.77%

Bond Market Analysis

Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 5.3 bps to 4.299%.

Am I steamed for not taking a punt on the short side in the T-bond? You bet your sweet bippy I'm steamed. It's been a  screaming sell since the mid-116's, but that spike last week was the absolute primo place to get short; it looks like it will be a significant high. Last night the June 30-year T-bond future finished just above 117 at 117&4/32, down almost a full point for the session.

The middle of the yield curve was broadly lower: five year yields rose to 3.836%, and ten-year yields rose to 4.047%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 3.0 bps tighter at 1.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 52.0 bps for 10-year AAA, and 85.0 bps 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 12.0 bps tighter at 35.0 basis points and the 10-year AAA-A spread 11.0 bps wider at 3.0 bps. Huzzah - we are finally back to 'regularity" in the 10-year corporate market.... now let that spread widen to 50 or 60 bps (and the 20-year widen to 80 bps) and I will be happy.

Treasury Yields
Index Close Gain(Loss) %
UST 13wk (yld) 2.937 0 0%
UST 2Y (yld) 3.68 0.08 2.22%
UST 5Y (yld) 3.836 0.079 2.1%
UST 10Y (yld) 4.047 0.082 2.07%
UST 30Y (yld) 4.299 0.053 1.25%

The Banks Index shed 0.23 points (0.23%), closing at 98.3; within the index,

  • MBNA Corp (KRB) -$0.37 (1.68%) to $21.60;
  • Northern Trust (NTRS) -$0.37 (0.8%) to $45.86;
  • Mellon Financial (MEL) -$0.20 (0.71%) to $27.98;
  • US Bancorp (USB) -$0.15 (0.51%) to $29.10; and
  • Comerica (CMA) -$0.28 (0.49%) to $56.32.

The Broker-dealer Index slid 1.12 points (0.75%), to 148.56; the ticket clippers lined up as follows -

  • E*Trade (ET) -$0.29 (2.16%) to $13.12;
  • Legg Mason (LM) -$1.41 (1.63%) to $84.84;
  • Raymond James (RJF) -$0.35 (1.26%) to $27.53;
  • Lehman Brothers (LEH) -$1.11 (1.17%) to $94.10; and
  • Charles Schwab (SCH) -$0.11 (0.93%) to $11.72.

The Philadelphia SOX (Semiconductor) index shed 7.74 points (1.77%), to end the session at 430.75

  • Advanced Micro Devices (AMD) -$0.64 (3.51%) to $17.57;
  • Xilinx (XLNX) -$0.85 (3.08%) to $26.79;
  • Intel (INTC) -$0.72 (2.6%) to $26.98;
  • National Semiconductors (NSM) -$0.56 (2.58%) to $21.13; and
  • Altera (ALTR) -$0.56 (2.53%) to $21.57.

Gold & Silver Markets

Gold rose $3.60 (0.85%) to close at $427.40 per ounce. (Note to self - roll the quotes forward to August starting on Monday).

The Gold Bugs Index added 7.33 points (3.97%), to 192.07

  • Coeur d'Alene (CDE) +$0.28 (8.59%) to $3.54;
  • Harmony Gold (HMY) +$0.56 (7.67%) to $7.86;
  • Glamis Gold (GLG) +$0.90 (6%) to $15.89;
  • Golden Star (GSS) +$0.14 (4.7%) to $3.12; and
  • Kinross Gold (KGC) +$0.24 (4.49%) to $5.58.

Silver was up 1.8¢  at $7.288 per ounce in the July contract. The Gold and Silver Index (XAU) gained 3.17 points (3.71%), to end the session at 88.54 points.

  • Harmony Gold (HMY) +$0.56 (7.67%) to $7.86;
  • Durban Rooderpoert Deep (DROOY) +$0.07 (7.22%) to $1.04;
  • Placer Dome (PDG) +$0.67 (4.84%) to $14.50; and
  • Kinross Gold (KGC) +$0.24 (4.49%) to $5.58.
Precious Metals and Indices
Index Close Gain(Loss) %
Gold 427.40 3.60 0.85%
Silver 7.288 0.018 0.25%
PHLX Gold and Silver Index 88.54 3.17 3.71%
AMEX Gold BUGS Index 192.07 7.33 3.97%

Oil Market

Oil lost ground, shedding $0.65 per barrel, closing at $53.54 per barrel. The Oil and Gas Index (XOI) dipped 0.63 points (0.07%), ending the day at 861.21

  • Royal Dutch Shell (RD) -$0.35 (0.59%) to $59.40;
  • ConocoPhillips (COP) -$0.32 (0.57%) to $55.94; and
  • Sunoco (SUN) -$0.56 (0.51%) to $108.41.

The Oil service stocks (OSX) Index rose 0.33 points (0.23%), at 142.49

  • GlobalSantaFe (GSF) +$0.93 (2.38%) to $39.98;
  • Global Industries (GLBL) +$0.15 (1.75%) to $8.71; and
  • Smith International (SII) +$0.71 (1.19%) to $60.41.
Energy Complex
Index Close Gain(Loss) %
Reuters CRB 302.48 -1.7 -0.56%
Crude Oil Light Sweet 53.54 -0.65 -1.2%
Heating Oil 1.6074 -0.02 -1.03%
Natural Gas 6.932 -0.12 -1.67%
Unleaded Gas 1.5436 -0.02 -1.37%
AMEX Oil Index 861.21 -0.63 -0.07%
Oil Service Index 142.49 0.33 0.23%

Currency Markets

USD Exchange Rates
Index Close Gain(Loss) %
US Dollar Index 88.68 0.67 0.76%
Euro 1.212 -0.0109 -0.89%
Yen 108.64 1.21 1.13%
Sterling 1.8126 -0.0077 -0.42%
Australian Dollar 0.7614 -0.0063 -0.82%
Swiss Franc 1.2687 0.0142 1.13%
Canadian Dollar 0.7993 0.0037 0.47%