Interdum stultus opportuna loquitur...

Tuesday, November 22, 2005

USRant: Barbarians at the Gates...

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

Mindless and emotional behaviour - whether positive or negative - doesn't get rewarded on this planet. It never has, and it never will. "Investing" (or pure speculating) based on slogans or a nationalistic belief in the inherent rightness of your particular tribe is a sign of the final stages of a society's ascent (in fact I would go so far as to say it is the indication that the society in question has already started to decline).

It has always been this way - Rome's apex in pomp, pageantry and sloganeering about the superiority of all things Roman - coincided with the abandonment of the Republic and the open declaration of Empire (shortly after the death of Cicero)... and it was only a relatively short time later that the Empire started to die from inside out. 

You can almost date the start of the decline to the end of the reign of Caesar Augustus (Julius Caesar's son. Octavian), but I think you can go back to the days of the Triumverate (Crassus, Pompey and Julius Caesar); it was about that time the dissent was suppressed, internal schisms were rife, and Roman intellectualism went from an admiration of the ancient Athenian habit of asking interesting questions about the world, to an admiration of the Spartan warrior ethos (i.e., going around sticking spears in things to see if they bleed). Eventually a group of people who didn't like the direction that Rome was taking, and so they stuck sharp metal things in Julius Caesar. Sure enough, he bled.

The populace had given up innovating, thinking that development of Heron's steam engine was unnecessary since there would always be loads of cheap slave labour (since they believed that nobody could stand up to Rome's army): Roman ingenuity concentrated almost exclusively on improvements to warfare and its accoutrements (encampments, weaponry and tactics).

D'you know what happened during that time? Rome invaded Iraq. I kid you not. In 53 BC (just after the successful conquest of Brittanica)... Crassus invaded Mesopotamia and got his head cut off during the loss at Carrhae.

From there, the coin was debased, inflation took hold (particularly in tyhe 2nd century AD), and the Myth of Roman Exceptionalism fractured.

As a wise man once said: history never repeats, but often it rhymes.


Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $7.75billion, overnight repurchase with $3.487billion in T-backed collateral undertaken at a 2.7 basis point discount to the Fed Funds Rate (FFR).

Major US Indices

In the last 18 sessions, the Dow has added about 650 points, during which time it has not closed once below the prior day's low. I dunno about you, but that gets all sorts of alarm bells ringing.

The hedge fund community - the hot money that along with other 'program traders' now makes up almost 60% of NYSE volume - has a vested interest in driving the indices up into year end. That's just a replay of last year, where the same twerps did the same thing in order to drag their chestnuts out of a year-long performance funk.

And sure, another factor is the ego-handjob that the Street is trying to administer to Alan Greenspan for his retirement party - that's something I've blathered about for months.

But under the surface there are some very significant signs of deterioration; weakening leadership breadth, the "flight to shite" where high-beta low-profit stocks are flying but low-beta high profit stocks are not... you get the picture. In other words, the US market is one gigantic game of 'pass the ticking parcel' - again.

The indices are now overbought on a weekly basis, and if you want a good guide as to what the future holds, take a look at a weekly chart from October - December 2004... a 900-point, 9-week advance died in the arse and dropped 450 points in the following 4 weeks. There was then a secondary rally lasting 5 weeks took the indices to their February highs (and for the Dow, that high has not been beaten yet), registering a CCI selling divergence that led to a 980 point drop in 6 weeks.

But that was then... this time it's different. Of course it is; the dates have changed and the US economy is more obviously fragile.

As for now...

The Dow Jones Industrial Average gained 51.15 points (0.47%), closing out the day at 10871.43 points. The index hit an intraday high of 10877.43, and fell as low as 10787.22 during the session. within the blue-chip index, 20 stocks rose, the biggest gainers being Intel (INTC, +3.60% to $26.16) and Altria Group (MO, +2.11% to $73.12), which accounted for 19 Dow points between them. Losers in the Dow numbered 10 and were led by Pfizer (PFE, -1.66% to $21.38) and General Motors (GM, -1.31% to $23.27), 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 258.4m shares to 213.7m.

The broader S&P500 rose 6.38 points (0.51%), to 1261.23. Within the index, gainers numbered 308, while 171 S&P500 stocks fell for the day. Volume was tilted 1.5:1 in favour of the winners with 1227.57 million units traded in the winners as compared with 797.35 million traded in the losers .

Over at Times Square, the Nasdaq Composite gained 11.89 points (0.53%), to close at 2253.56, while larger-cap technology issues fared worse with the Nasdaq100 adding 7.91 points (0.47%), to end at 1694.14 points. Within the tech benchmark, gainers numbered 49, while 48 Nasdaq100 stocks fell for the day. Volume was tilted 1.1:1 in favour of the winners with 447.85 million traded in the winners compared to 402.97 million in the losers .

NYSE Volume was super-chunky, with 2.24 billion shares changing hands, while Nasdaq Volume was chunky, with 1.9 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10871.4351.150.47%
Nasdaq Composite2253.5611.890.53%
NYSE Volume2.24bn--
Nasdaq Volume1.9bn--


My 9-stock "bellwethers" group rose by an average of 1.41%

  • General Electric (GE) -$0.14 (0.39%) to $36.06;
  • Citigroup (C) +$0.41 (0.85%) to $48.92;
  • Wal Mart (WMT) +$0.58 (1.17%) to $50.20;
  • I.B.M. (IBM) +$0.70 (0.8%) to $87.99;
  • Intel (INTC) +$0.91 (3.6%) to $26.16;
  • Cisco Systems (CSCO) +$0.22 (1.29%) to $17.28;
  • eBay (EBAY) +$0.56 (1.21%) to $46.75;
  • Fannie Mae (FNM) +$0.77 (1.57%) to $49.80; and
  • Freddie Mac (FRE) +$1.63 (2.61%) to $64.08.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1953 to 1339 for a single-day A/D reading of 614; Nasdaq gainers trumped losers by 1673 to 1372. The 10-day moving average of the A/D line rose to 315.3 on the NYSE, while the 10dma of the Nasdaq A/D rose to 197.5.

NYSE advancing volume exceeded volume in decliners by 1443.9 to 760.2 million shares; Nasdaq advancing volume was greater than volume in decliners by 1077.5 to 709.4 million shares.

211 NYSE-listed stocks rose to new 52-week highs, and 161 posted fresh 52-week lows, while on the Nasdaq there were 183 stocks that hit new 52-week highs, and 45 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1443.871077.51
Declining Volume (m)760.22709.35
New Highs211183
New Lows16145

Market Sentiment Statistics
CBOE Volatility Index10.63-0.19-1.76%
CBOE Nasdaq Volatility Index13.99-0.12-0.85%
Equity Put-Call Ratio0.770.0913.24%
10-day PCR0.6100%
SPX-VIX Ratio118.66.395.7%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 0.3 bps to 4.655%.

The middle of the yield curve was broadly higher: five year yields fell to 4.334%, and ten-year yields fell to 4.428%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 8.0 bps wider at 18.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 65.0 bps for 10-year AAA, and 90.5 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 wider at 38.0 basis points and the 10-year AAA-A spread 6.0 bps tighter at 4.0 bps.

Treasury Yields
UST 13wk (yld)3.832-0.063-1.62%
UST 2Y (yld)4.29-0.08-1.83%
UST 5Y (yld)4.334-0.055-1.25%
UST 10Y (yld)4.428-0.033-0.74%
UST 30Y (yld)4.655-0.003-0.06%

The Banks Index posted a rise of 0.66 points (0.63%), to 104.88; within the index,

  • Golden West Financial (GDW) +$1.50 (2.27%) to $67.64;
  • Wachovia (WB) +$0.98 (1.85%) to $54.04;
  • Fifth Third Bancorp (FITB) +$0.72 (1.75%) to $41.94;
  • Mellon Financial (MEL) +$0.52 (1.57%) to $33.66; and
  • US Bancorp (USB) +$0.31 (1.02%) to $30.61.

The Broker-dealer Index rose 0.51 points (0.26%), closing at 196.38; the ticket clippers lined up as follows -

  • Ameritrade (AMTD) +$0.39 (1.68%) to $23.57;
  • Morgan Stanley (MWD) +$0.43 (0.77%) to $56.45;
  • Merrill Lynch (MER) +$0.39 (0.58%) to $67.79;
  • Jeffries Group (JEF) +$0.26 (0.56%) to $47.04; and
  • A G Edwards (AGE) +$0.25 (0.56%) to $45.26.

The Philadelphia SOX (Semiconductor) index rose 4.29 points (0.9%), closing at 482.87

  • Intel (INTC) +$0.91 (3.6%) to $26.16;
  • Micron Technology (MU) +$0.47 (3.31%) to $14.67;
  • Taiwan Semiconductors (TSM) +$0.29 (3.16%) to $9.46;
  • Texas Instruments (TXN) +$0.75 (2.36%) to $32.55; and
  • Teradyne (TER) +$0.31 (2.22%) to $14.29.

Gold & Silver Markets

Gold rose $3.40 (0.69%) to close at $492.90 per ounce. Clearly someone with a decent slug of coin is starting to get fretful about the inflationary prospects in the US.

The Gold Bugs Index rose 1.49 points (0.59%), at 254.81

  • Hecla Mining (HL) +$0.31 (8.68%) to $3.88;
  • Randgold Resources (GOLD) +$0.73 (4.66%) to $16.38;
  • Goldcorp (GG) +$0.31 (1.45%) to $21.63;
  • Gold Fields (GFI) +$0.19 (1.19%) to $16.16; and
  • Harmony Gold (HMY) +$0.14 (1.07%) to $13.21.

Silver rose $0.04 (0.45%) to close at $8.17 per ounce. 

The Gold and Silver Index (XAU) gained 1.03 points (0.87%), to end the session at 119.06 points.

  • Placer Dome (PDG) +$0.51 (2.38%) to $21.90;
  • Goldcorp (GG) +$0.31 (1.45%) to $21.63;
  • Barrick Gold (ABX) +$0.38 (1.39%) to $27.81; and
  • Gold Fields (GFI) +$0.19 (1.19%) to $16.16.
Precious Metals and Indices
PHLX Gold and Silver Index119.061.030.87%
AMEX Gold BUGS Index254.811.490.59%

Oil Market

Oil was firmer, rising by $1.14 per barrel, closing at $58.84 per barrel. 

The Oil and Gas Index (XOI) posted a rise of 19.47 points (1.96%), closing at 1014.21

  • Kerr Mcgee (KMG) +$2.94 (3.4%) to $89.42;
  • Occidental Petroleum (OXY) +$2.47 (3.23%) to $78.92; and
  • Marathon Oil (MRO) +$1.39 (2.33%) to $61.15.

The Oil service stocks (OSX) Index added 3.9 points (2.2%), at 181.36

  • Halliburton (HAL) +$2.48 (3.95%) to $65.30;
  • Transocean (RIG) +$2.24 (3.6%) to $64.50; and
  • Weatherford International (WFT) +$2.36 (3.49%) to $70.03.
Energy Complex
Reuters CRB330.870.860.26%
Crude Oil Light Sweet58.841.141.98%
Heating Oil1.79580.021.26%
Natural Gas11.6140.282.5%
Unleaded Gas1.54820.031.98%
AMEX Oil Index1014.2119.471.96%
Oil Service Index181.363.92.2%

Currency Markets

Yesterday there was an absolute ambush on the Euro at the time that the Leading Indicators were released (which is odd, since that report is a brainless piece of data-mining, curve-fitting crap that doesn't "lead" anything) - the Euro dropped 80 pips in three minutes and was 'broken' for the session thereafter. And yet today the thing recovered pretty much the entire attempt to crush it.

I'm glad that this 'position' (recall, it's notionally long from 1.1835 on the ECz% futures) has been forced to weather a significant downside risk - it shows that it's possible to be right and still to have to endure some short-term discomfort. The entry timing was awful - happening just as the French rioters gave dollar bulls somthing to get enthusiastic about - but that only adds dollar bulls to the fire... when dumb money joins a rally (in the USD, I mean) in an already-overbought market, as a result of news that doesn't change any underlying fundamentals... well, that doesn't end with happy bulls. It ends with a huge supply of 'prairie eggs' (cooked bull's balls).

USD Exchange Rates
US Dollar Index91.49-0.56-0.61%
Australian Dollar0.73770.00190.26%
Swiss Franc1.3105-0.0094-0.71%
Canadian Dollar0.85150.00560.66%