Interdum stultus opportuna loquitur...

Wednesday, July 06, 2005

USRant: Bonds tank (YAY!!), Equities Monday-ish...

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

So where to now for the bonds? The 30-year lost a bunch last night, throwing the short 30-years established a week ago well into the "Goodbye Mr Spalding" camp (also referred to as "that damn thing oughtta have a hostess on it" per Crash Davis in Bull Durham. The third drop's the charm, as I outlined a couple of times last week, and after bouncing back close to 119 late last week (recall that it got back up to 118-31/32) it has absolutely plummeted.

Last night it closed at 116-26/32, meaning that shorts established at 119-03/32 are in the money to the tune of over 2 points.  The position closed with a gain of 73 ticks ($2281.25 per $1553 margin, or 147% profit); not bad for exactly a week. So far there has only been one dud trade (i.e., one that was exited prior to a gain of 100%) in the bonds during Rant time - a short from 117 two months ago that gave three bites  and then blew through the entry - but the exit signal was given explicitly before the thing reversed. I will dig up the reference and post it tomorrow.

The only economic data out last night was Factory Orders, and it stank like a prawn trawler on a hot day. As you're aware, there is only one number of any importance in the Factory Orders report... namely (repeat after me)

Non-Defence Capex ex-Aircraft

And what do we see in the report for that line item? A fall of 2.6% - meaning that this so-called 'recovery' is still failing to provide any impetus for new "capacity build". That's the sort of thing that shows how badly the statistics 'hang together'. Inconsistency is the principal source of intelligence for the good analyst, and this inconsistency has been a hum-dinger for three years. The US Administration has countered an obviously lacklustre economy by resorting to the  Soviet paradigm of falsified statistics based on egregiously biased methods; but invariably these methods concentrate on 'headline' numbers, and ignore second-tier numbers... which is where the lies are discovered.

Ask yourself - if the President was some bloke selected at random from the adult population, would he feel obliged to engage is systematic deception of the people about anything? The people would not be able to blame the Administration for the economy, and the economy would not be a talking point for opposition Party-men for the next election.

I should point out that governments don't help economies - ever - except by getting the hell out of the way of private decision-making. Their job is supposed to be to provide public goods at the least possible cost... deliberately getting in the road (i.e., through taxation) but doing it to the smallest extent and the least distortionary way possible. that's the theory. The reality of course is that politicians are fed streams of 'ideas' from self-interested lobbyists, and cannot resist their urge to get their oars wet; that is why politicians have got to go, and be replaced with randomly selected representatives. It is not democracy that's the big problem, it is the capture  of the political system by Party-machines.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 2 repurchase operations.

  • a $12billion, overnight repurchase with $11.65billion in T-backed collateral ; and
  • a $8billion, 2-day repurchase with $7.32billion in T-backed collateral.
Both repurchases were struck at rates below the Fed Funds rate (FFR) - the overnight repo was at a 2.9 basis point discount to FFR, and the 2-day was at a whopping 7.1 basis point discount. So with that amount of money in their 'kick', da Boyz had plenty of juice for the 10-a.m. pump operation.

Major US Indices

The Dow Jones Industrial Average advanced 68.36 points (0.66%), closing out the day at 10371.8 points. The index hit an intraday high of 10389.06 just under 10 minutes before the close, after dipping to its intraday low (10282.65) within the first ten minutes. As usual with the amount of repurchase dough sloshing around, the "buy at 10 a.m." strategy worked a treat - the Dow rose just under 100 points between 10 a.m. and 3:50 p.m. NY time.

Within the blue-chip index, 23 stocks rose, the biggest gainers being Wal Mart (WMT, +3.15% to $49.80) and Exxon Mobil (XOM, +3.14% to $60.14), which accounted for 26 Dow points between them. Losers in the Dow numbered 7 and were led by Honeywell (HON, -0.88% to $35.96) and Procter & Gamble (PG, -0.28% to $52.75), with these two stocks contributing -4 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 252.3 m shares to 86.1 m. What can you say - it was a 'deferred Monday', and the goldfish have forgotten everything after their weekend propaganda bath.

The broader S&P500 posted a rise of 10.55 points (0.88%), to 1204.99. Within the index, gainers numbered 371, while 117 S&P500 stocks fell for the day. Volume was tilted 2.3:1 in favour of the winners with 1.11 billion units traded in the winners as compared with 492.03 million traded in the losers .

Over at Times Square, the Nasdaq Composite rose 21.38 points (1.04%), to close at 2078.75, while larger-cap technology issues fared better with the Nasdaq100 adding 15.82 points (1.06%), to end at 1506.35 points. Within the tech benchmark, gainers numbered 76, while 22 Nasdaq100 stocks fell for the day. Volume was tilted 2.1:1 in favour of the winners with 410.77 million traded in the winners compared to 191.17 million in the losers .

NYSE Volume was chunky, with 1.76 billion shares changing hands, while Nasdaq Volume was about average, with 1.45 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10371.868.360.66%
Nasdaq Composite2078.7521.381.04%
NYSE Volume1.76bn--
Nasdaq Volume1.45bn--


My 9-stock "bellwethers" group rose by an average of 0.61%, but I notice that Citigroup is not travelling particularly well (today's action is OK, but recent charts have not been salubrious).

  • General Electric (GE) -$0.02 (0.06%) to $34.72;
  • Citigroup (C) +$0.30 (0.65%) to $46.46;
  • Wal Mart (WMT) +$1.52 (3.15%) to $49.80;
  • I.B.M. (IBM) +$0.12 (0.16%) to $74.79;
  • Intel (INTC) +$0.47 (1.79%) to $26.68;
  • Cisco Systems (CSCO) -$0.17 (0.9%) to $18.82;
  • eBay (EBAY) +$0.66 (2.01%) to $33.54;
  • Fannie Mae (FNM) -$0.31 (0.53%) to $58.50; and
  • Freddie Mac (FRE) -$0.50 (0.76%) to $65.34.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2158 to 1144 for a single-day A/D reading of 1014; Nasdaq gainers trumped losers by 2061 to 1015. The 10-day moving average of the A/D line rose to 429.8 on the NYSE, while the 10dma of the Nasdaq A/D rose to 213.5.

NYSE advancing volume exceeded volume in decliners by 1205.2 to 539.9 million shares; Nasdaq advancing volume was greater than volume in decliners by 991.1 to 415.3 million shares.

353 NYSE-listed stocks rose to new 52-week highs, and 35 posted fresh 52-week lows, while on the Nasdaq there were 159 stocks that hit new 52-week highs, and 42 which fell to fresh 52-week lows. The NYSE in particular is starting to look toppy.

Market Breadth Statistics

Advancing Volume (m)1205.16991.12
Declining Volume (m)539.85415.27
New Highs353159
New Lows3542

Market Sentiment Statistics
CBOE Volatility Index11.680.282.46%
CBOE Nasdaq Volatility Index14.50.231.61%
Equity Put-Call Ratio0.770.011.32%
10-day PCR0.5800%
SPX-VIX Ratio103.2-1.61-1.54%

Bond Market Analysis

As I outlined in the opening remarks, bonds fell hard at the long end. The yield on the benchmark 30-year Treasury bond rising 6.4 bps to 4.362%.

The middle of the yield curve was broadly lower in price, too: five year yields rose to 3.899%, and ten-year yields rose to 4.099%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps tighter at -6.0 basis points; in other words, corporate bonds are less risky that government bonds. Madness.

Spreads between longer dated Treasuries and their corporate AAA counterparts fell to 38.0 bps for 10-year AAA, and 83.5 bps for 20-years. I think that means that a lot of corporate bond traders are still on holidays, because those spreads are just begging to widen.

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 24.0 bps wider at 45.0 basis points and the 10-year AAA-A spread 16.0 bps wider at 21.0 bps. Remember when it was negative? Anyone who bet on a widening of that spread is now absolutely in clover... but it took a long while to resolve.

Treasury Yields
UST 13wk (yld)3.13700%
UST 2Y (yld)3.770.041.07%
UST 5Y (yld)3.8990.0741.93%
UST 10Y (yld)4.0990.051.23%
UST 30Y (yld)4.3620.0641.49%

The Banks Index advanced 0.56 points (0.57%), at 99.47; within the index,

  • Northern Trust (NTRS) +$0.84 (1.82%) to $47.00;
  • Wachovia (WB) +$0.88 (1.79%) to $50.05;
  • National City Corp (NCC) +$0.53 (1.54%) to $35.03;
  • North Fork Bancorp (NFB) +$0.42 (1.48%) to $28.78; and
  • Suntrust Banks (STI) +$1.03 (1.41%) to $74.07.

The Broker-dealer Index rose 1.05 points (0.65%), to 161.7; the ticket clippers lined up as follows -

  • Legg Mason (LM) +$2.24 (2.14%) to $106.75;
  • Morgan Stanley (MWD) +$0.74 (1.4%) to $53.77;
  • Merrill Lynch (MER) +$0.66 (1.2%) to $55.71;
  • Charles Schwab (SCH) +$0.11 (0.97%) to $11.44; and
  • A G Edwards (AGE) +$0.33 (0.72%) to $46.04.

The Philadelphia SOX (Semiconductor) index posted a rise of 6.51 points (1.55%), at 425.87

  • Advanced Micro Devices (AMD) +$0.59 (3.38%) to $18.04;
  • Texas Instruments (TXN) +$0.91 (3.25%) to $28.94;
  • Freescale Semiconductors (FSL-B) +$0.66 (3.14%) to $21.68;
  • Marvell Tech Group (MRVL) +$1.18 (3.11%) to $39.18; and
  • Micron Technology (MU) +$0.30 (2.94%) to $10.50.

Gold & Silver Markets

Gold fell by another $4.10 (0.96%) to close at $424.70 per ounce. The US dollar is the key here - it has broken 90 (just), and that is making gold small-lot traders nervy.

Gold Bugs Index shed 5.44 points (2.69%), to end the session at 196.63

  • Glamis Gold (GLG) -$0.95 (5.52%) to $16.25;
  • Hecla Mining (HL) -$0.24 (5.23%) to $4.35;
  • Kinross Gold (KGC) -$0.28 (4.59%) to $5.82;
  • Golden Star (GSS) -$0.13 (4.21%) to $2.96; and
  • Coeur d'Alene (CDE) -$0.14 (3.9%) to $3.45.

Silver fell by $0.03 (0.36%) to close at $6.84 per ounce. The Gold and Silver Index (XAU) lost 2.45 points (2.62%), to 90.93 points.

  • Kinross Gold (KGC) -$0.28 (4.59%) to $5.82;
  • Barrick Gold (ABX) -$1.10 (4.35%) to $24.18;
  • Placer Dome (PDG) -$0.64 (4.16%) to $14.75; and
  • Meridian Gold (MDG) -$0.63 (3.49%) to $17.40.
Precious Metals and Indices
PHLX Gold and Silver Index90.93-2.45-2.62%
AMEX Gold BUGS Index196.63-5.44-2.69%

Oil Market

Oil was firmer, rising by $0.98 per barrel, closing at $59.73 per barrel. Keep an eye out for a completely counter-intuitive move in oil this week following the oil inventories data: if the oil inventories data is bad (i.e., if there is a smaller-than-expected inventory build), watch for a downdraft, and the reverse if the inventories grow more than expected. It's poised to scar anyone who trades like a novice.

The Oil and Gas Index (XOI) advanced 20.98 points (2.3%), at 931.27

  • BP (BP) +$2.77 (4.38%) to $66.00;
  • ConocoPhillips (COP) +$2.14 (3.62%) to $61.27; and
  • Exxon Mobil (XOM) +$1.83 (3.14%) to $60.14.

The Oil service stocks (OSX) Index rose 4.97 points (3.37%), to end the session at 152.47

  • Rowan Companies (RDC) +$1.48 (4.88%) to $31.79;
  • Cooper Cameron (CAM) +$2.97 (4.75%) to $65.47; and
  • Transocean (RIG) +$2.41 (4.45%) to $56.55.
Energy Complex
Reuters CRB314.335.791.88%
Crude Oil Light Sweet59.730.981.67%
Heating Oil1.7370.031.51%
Natural Gas7.530.365.01%
Unleaded Gas1.68800.21%
AMEX Oil Index931.2720.982.3%
Oil Service Index152.474.973.37%

Currency Markets

USD Exchange Rates
US Dollar Index90.430.30.33%
Australian Dollar0.7413-0.0106-1.41%
Swiss Franc1.30410.00660.51%
Canadian Dollar0.8041-0.0009-0.11%