Interdum stultus opportuna loquitur...

Wednesday, December 07, 2005

USRant: Saved By A Contraction In Credit? Odd...

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

Economic data was pretty sparse - pre-market data was the Mortgage Bankers Association index of Purchase Applications which rose 4% for the week, with the refinancing component up a whopping 7% for the week (the refi component has been extremely weak in recent months as mortgage rates have followed 10-year rates upwards).

Call me a skeptic, but this finally looks like the last hurrah for the HELOC-funded consumption binge (HELOC is 'home equity line of credit' - a.k.a. House-as-ATM). People have still not woken up to the idea that taking equity out of your house and spending it on a plasma TV is the same thing as spending your kid's college fund on internet porn subscriptions. They will find out eventually that a refinanced mortgage with an equity extraction is, in fact, an increase in your overall indebtedness; far from the family home being the primary mechanism for transfer of wealth to subsequent generations, the Baby Boomers (the most selfish generation in history: little wonder their kids are pains in the ass) are actually consuming their stored wealth. There is a parable somewhere about eating your seed corn...

During the market session, data came out on Job Cuts, with mass layoffs totalling almost 100,000 for the month - not much lower than the 104k this time last year:  the hedonically-manipulated data showing 'economic expansion' is not translating into more jobs (except for Phantom Workers - 800,000 of those have been plucked out of a statistician's arse via the CES Net Birth Death Model), and it's not translating into higher wages (real wages have fallen more in the last three years than in any period in the post-war era). In order to 'keep up with the Joneses', American families are cashing in their home equity and taking on debt.

Speaking of taking on debt, the real surprise number for the session - and the number that helped stem an accelerating afternoon selloff (it was released at 3 p.m.) - was data on Consumer Credit, which showed a 7.2 billion reduction in Consumer Credit. If that's the result of tightening credit standards (i.e., a tightening of credit supply), then expect consumption spending to slacken off this coming quarter; is it's the result of voluntary reductions in consumer demand for credit I would be very surprised. 

Apart from that, there was the usual Wednesday Petroleum Status Report from the Energy Informantion Administration. This week it looked like someone had hit 'CTRL-C CTRL-V' too often - all inventories (Crude Oil, Distillates and Gasoline) rose by 2.7million barrels. Importantly for the Rant "lower oil prices' thesis (yes, it's still in force), Heating Oil inventories rose despite the week's cold snap, and refinery capacity got back above 90%.

Federal Reserve Open Market Operations

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

  • a $4.25billion, overnight repurchase with $2.174billion in T-backed collateral undertaken at a 0.3 basis point premium to the Fed Funds Rate (FFR); and
  • a $5billion, 28-day repurchase with $1billion in T-backed collateral undertaken at a 6 basis point premium to the Fed Funds Rate (FFR). This repo was done solely to provide a 'heads up' (because of the premium-to-FFR) everyone with a clue that the Fed is going to hike again at its next scheduled meeting.

Major US Indices

The Dow Jones Industrial Average slid 45.95 points (0.42%), closing out the day at 10810.91 points - and it only got back above 10800 thanks to a sharp puch in the last five minutes. The index hit an intraday high of 10868.06 just after the end of the first hour (the mandatory 'tease test' of the first-hour extreme), and fell as low as 10764.01 just aftter 3 p.m. - almost a 100-point drop. 

Within the blue-chip index, 9 stocks rose, the biggest gainers being General Motors (GM, +2.90% to $23.04) and Alcoa (AA, +1.24% to $28.59), which accounted for 5 Dow points between them. Losers in the Dow numbered 20 and were led by Intel (INTC, -1.95% to $26.15) and Caterpillar (CAT, -1.73% to $57.78), 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 249m shares to 128.1m.

The broader S&P500 lost 6.33 points (0.5%), to 1257.37. Within the index, gainers numbered 137, while 344 S&P500 stocks fell for the day. Volume was tilted 1.8:1 in favour of the losers with 1168.72 million units traded in the losers as compared with 641.86 million traded in the winners .

Over at Times Square, the Nasdaq Composite dipped 8.75 points (0.39%), to close at 2252.01, while larger-cap technology issues fared better with the Nasdaq100 losing 4.31 points (0.25%), to end at 1697.04 points. Within the tech benchmark, gainers numbered 32, while 65 Nasdaq100 stocks fell for the day. Volume was tilted 1.4:1 in favour of the losers with 451.92 million traded in the losers compared to 321.40 million in the winners .

NYSE Volume was super-chunky, with 2.07 billion shares changing hands - although the 'chunky cutoff' whould really be revised since NYSE volume has been above 2 billion consistently for some time. Nasdaq Volume was semi-chunky, with 1.73 billion shares traded. Shortly I will start comparing these volume stats to their recent (10-day and 1-month) averages rather than retaining the old-fashioned comparison magnitudes: it used to be that 2 billion shares on the NYSE was a huge day.

Major Market Statistics
Dow Jones Industrial Average10810.91-45.95-0.42%
Nasdaq Composite2252.01-8.75-0.39%
NYSE Volume2.07bn--
Nasdaq Volume1.73bn--


My 9-stock "bellwethers" group fell by an average of 0.44%

  • General Electric (GE) -$0.23 (0.64%) to $35.57;
  • Citigroup (C) -$0.19 (0.39%) to $48.70;
  • Wal Mart (WMT) +$0.13 (0.27%) to $47.75;
  • I.B.M. (IBM) -$0.42 (0.47%) to $88.72;
  • Intel (INTC) -$0.52 (1.95%) to $26.15;
  • Cisco Systems (CSCO) +$0.22 (1.25%) to $17.78;
  • eBay (EBAY) -$0.36 (0.81%) to $44.33;
  • Fannie Mae (FNM) -$0.24 (0.5%) to $47.36; and
  • Freddie Mac (FRE) -$0.49 (0.77%) to $63.37.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 2073 to 1236, for a single-day A/D reading of -837; and Nasdaq losers exceeded gainers by 1875 to 1152. The 10-day moving average of the A/D line fell to -86.2 on the NYSE, while the 10dma of the Nasdaq A/D fell to -141.0.

On the NYSE declining volume was greater than volume in advancing issues by 1274.6 to 731.5 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 1043.9 to 666.6 million shares.

115 NYSE-listed stocks rose to new 52-week highs, and 82 posted fresh 52-week lows, while on the Nasdaq there were 106 stocks that hit new 52-week highs, and 47 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)731.45666.64
Declining Volume (m)1274.61043.9
New Highs115106
New Lows8247

Market Sentiment Statistics
CBOE Volatility Index12.180.665.73%
CBOE Nasdaq Volatility Index15.120.765.29%
Equity Put-Call Ratio0.680.011.49%
10-day PCR0.5800%
SPX-VIX Ratio103.2-6.46-5.89%

Bond Market Analysis

Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 2.5 bps to 4.719%. The flirting with 4.75% yield continues - everybody knows that US bonds are way overpriced, but no large trader is prepared to be the fellow who drives yields above 4.75% permanently. A 'fair' yield on the 30-year would be closer to 6% if the economic expansion was genuine.

The middle of the yield curve was broadly lower in price: five year yields rose to 4.444%, and ten-year yields rose to 4.517%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps wider at 14.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 65.0 bps for 10-year AAA, and 93.0 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 8.0 bps looser at 19.0 basis points and the 10-year AAA-A spread 5.0 bps wider at 3.0 bps.

Treasury Yields
UST 13wk (yld)3.93-0.002-0.05%
UST 2Y (yld)4.4100%
UST 5Y (yld)4.4440.0230.52%
UST 10Y (yld)4.5170.0230.51%
UST 30Y (yld)4.7190.0250.53%

The Banks Index declined 1.01 points (0.97%), ending the day at 103.41; within the index,

  • PNC Financial Services (PNC) -$1.16 (1.81%) to $63.07;
  • Bank Of NY (BK) -$0.53 (1.63%) to $32.07;
  • US Bancorp (USB) -$0.46 (1.51%) to $30.08;
  • Washington Mutual (WM) -$0.60 (1.44%) to $41.00; and
  • Zions Bancorp (ZION) -$1.05 (1.4%) to $74.15.

The Broker-dealer Index shed 1.39 points (0.71%), ending the day at 194.72; the ticket clippers lined up as follows -

  • Charles Schwab (SCH) -$0.28 (1.82%) to $15.13;
  • E*Trade (ET) -$0.23 (1.14%) to $19.97;
  • A G Edwards (AGE) -$0.50 (1.11%) to $44.60;
  • Goldman Sachs (GS) -$1.42 (1.08%) to $129.89; and
  • Bear Stearns (BSC) -$1.22 (1.08%) to $111.65.

The Philadelphia SOX (Semiconductor) index declined 5.96 points (1.19%), to end the session at 496.9

  • Freescale Semiconductors (FSL-B) -$0.76 (2.79%) to $26.49;
  • Micron Technology (MU) -$0.33 (2.36%) to $13.66;
  • KLA-Tencor (KLAC) -$1.12 (2.09%) to $52.57;
  • Intel (INTC) -$0.52 (1.95%) to $26.15; and
  • Xilinx (XLNX) -$0.50 (1.85%) to $26.48.

Gold & Silver Markets

Gold rose $4.00 (0.78%) to close at $517.80 per ounce. 

The Gold Bugs Index gained 5.07 points (1.98%), to 260.89

  • Golden Star (GSS) +$0.28 (11.91%) to $2.63;
  • Gold Fields (GFI) +$0.66 (4.23%) to $16.28;
  • Agnico Eagle (AEM) +$0.64 (3.87%) to $17.17;
  • Glamis Gold (GLG) +$0.81 (3.34%) to $25.04; and
  • Hecla Mining (HL) +$0.12 (3.21%) to $3.86.

Silver rose $0.09 (0.97%) to close at $8.88 per ounce. 

The Gold and Silver Index (XAU) gained 2.29 points (1.91%), to 121.98 points.

  • Gold Fields (GFI) +$0.66 (4.23%) to $16.28;
  • Agnico Eagle (AEM) +$0.64 (3.87%) to $17.17;
  • Barrick Gold (ABX) +$0.82 (3.04%) to $27.81; and
  • Anglogold Ashanti (AU) +$1.17 (2.61%) to $45.98.
Precious Metals and Indices
PHLX Gold and Silver Index121.982.291.91%
AMEX Gold BUGS Index260.895.071.98%

Oil Market

Oil lost ground, shedding $0.73 per barrel, closing at $59.21 per barrel after spending the early part of the session above $60 again. 

The Oil and Gas Index (XOI) dipped 9.77 points (0.96%), closing at 1008.91

  • BP (BP) -$1.43 (2.08%) to $67.33;
  • TotalFinaElf S.A. (TOT) -$2.27 (1.76%) to $126.82; and
  • Amerada Hess (AHC) -$2.19 (1.74%) to $123.91.

The Oil service stocks (OSX) Index added 0.48 points (0.26%), ending the day at 183.9

  • Nabors Industries (NBR) +$1.13 (1.58%) to $72.73;
  • GlobalSantaFe (GSF) +$0.61 (1.28%) to $48.28; and
  • Baker Hughes (BHI) +$0.66 (1.11%) to $60.34.
Energy Complex
Reuters CRB340.451.210.36%
Crude Oil Light Sweet59.21-0.73-1.22%
Heating Oil1.7366-0.04-2%
Natural Gas13.70.211.56%
Unleaded Gas1.5676-0.02-1%
AMEX Oil Index1008.91-9.77-0.96%
Oil Service Index183.90.480.26%

Currency Markets

USD Exchange Rates
US Dollar Index91.890.450.49%
Australian Dollar0.7472-0.0058-0.77%
Swiss Franc1.31370.00920.71%
Canadian Dollar0.8629-0.001-0.12%