Interdum stultus opportuna loquitur...

Thursday, December 15, 2005

USRant: Trade deficit A Record... Who Cares? (Short Bonds)...

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

Sorry it's late: I was up until nearly 3 a.m. getting the subscriber database fixed, and fixing the way that the content pages interact with the new (different-structured, hand-built) subscriber database. Boy will I be tired by the end of today...

Well, well, well... three holes in the ground - or if you were an oil bull, three abysses into which you now stare. I was reading some stuff written by a little known genius who was writing about the oil market only yesterday, declaring two things:

  • that the previous session was the swing high for oil, and any bounce should be shorted; and
  • that the prime speculation vehicle for this swing was Natural Gas and/or Heating Oil.

Oh, hang on. I've mis-remembered. I wasn't reading the genius... I was writing it. Let's review (from yesterday)...

Last night was almost certainly the high in oil for the time being; if it nudges a little higher tomorrow, that's OK. Time and price are spot on for a massive downdraft (again) - but this time the best vehicle for speculation will be Heating Oil or Natural Gas futures. At more than $15, NatGas is priced ridiculously. Short Crude if you like (it will also be a good ride down - it's a downtrend, silly), but frankly HO is the GO.

Well, NatGas dropped 4.26% last night (Heating Oil actually managed to go up). If you were undecided and took both, you still made 65% for the session. I believe that the malapropism used by military wanna-bees is "Boo-yah!". (Note for the wise: Booyah is slang for a thick soup; grunts actually say 'Hoo-ah'... anyone who says Booyah is a wanker).

Crude popped up but made a lower high (by 15c) before reversing by $1.20 - although it didn't drop below $60 (yet).

I'm still pining for the mised opportunity in Gold - you will recall last Friday's Rant which was absolutely unambiguous (I repeated it yesterday but it's worth repeating again... it's so damn good):

It [Note: 'it' here is Gold] has risen a whopping $23 this week; to me, that seems excessive - and I'm going to start looking to short Gold next week. That will be the first time in Rant history, and in fact for the first time since a one-day short follwing a spike in Gold to above $300, way way back in January 1999

Well, last night it dropped an impressive $13... and we still weren't positioned. Don't get me wrong, this is not the end of the Gold Bull: but was the call timely, or was it timely? (Note to self: try and figure out how to renege on that whole 'selling your soul in exchange for market foresight' deal).

OK - enough of the toot-tooting on one's own horn: let's get down to today.

Economic data was fairly awful - the Mortgage Bankers' Association index of Purchases registered a 3.5% fall, and a 9.7% fall in the refinancing component of the index. This was despite a one-basis-point dip in mortgage interest rates during the week. 

As if a cooling mortgage market wasn't bad news, the Trade Balance data came in at a new record deficit of 68 billion dollars. In other words, the US is having to import over $2 billion a day from global savings, just in order to pay for its geeges and gimcracks. And if it wasn't for a flurry of civilian aircraft exports (as a resultof a resolution of a strike at Boeing), the trade gap would have topped $70 billion - which is (roughly) the GDP of New Zealand.

One last thing (this has been on my mind for the last six months: to me it is a prime indication of the fatuity of the recent American mindset). At what point in the history of post-Enlightenment civilisation did it become acceptable for the phrase "Who's your Daddy?" to be spoken to the party of the second part during intercourse?

Just think about it for a second... I know there are places in the Ozarks where that sort of thing goes on, but it tends to result in children with vestigial limbs growing out of their foreheads.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $2.52billion, overnight repurchase entirely in T-backed collateral undertaken at a 1 basis point discount to the Fed Funds Rate (FFR).

Major US Indices

The Dow Jones Industrial Average rose 59.79 points (0.55%), closing out the day at 10883.51 points. The index hit an intraday high of 10919.77 (close enough to be called 10925-ish) at just after 3 p.m., after opening at 10820.32 (10825-ish) which turnedout to be the low of the day. 

Within the blue-chip index, 19 stocks rose, the biggest gainers being Pfizer (PFE, +2.42% to $22.85) and Procter & Gamble (PG, +1.90% to $59.62), which accounted for 17 Dow points between them. Losers in the Dow numbered 11 and were led by International Business Machines (IBM, -0.69% to $83.13) and AT&T (T, -0.60% to $24.87), 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 247.6m shares to 246.2m.

The broader S&P500 advanced 5.31 points (0.42%), to end the session at 1272.74. Within the index, gainers numbered 318, while 160 S&P500 stocks fell for the day. Volume was tilted 1.4:1 in favour of the winners with 1095.59 million units traded in the winners as compared with 811.06 million traded in the losers .

Over at Times Square, the Nasdaq Composite shed 2.41 points (0.11%), to close at 2262.59, while larger-cap technology issues fared worse with the Nasdaq100 losing 6.79 points (0.4%), to end at 1698.98 points. Within the tech benchmark, gainers numbered 35, while 61 Nasdaq100 stocks fell for the day. Volume was tilted 2.8:1 in favour of the losers with 582.61 million traded in the losers compared to 204.47 million in the winners .

NYSE Volume was slightly above recent averages, with 2.15 billion shares changing hands, while Nasdaq Volume was in line with its recent average at 1.73 billion shares.

Major Market Statistics
Dow Jones Industrial Average10883.5159.790.55%
Nasdaq Composite2262.59-2.41-0.11%
NYSE Volume2.15bn--
Nasdaq Volume1.73bn--


My 9-stock "bellwethers" group rose by an average of 0.05%

  • General Electric (GE) +$0.30 (0.85%) to $35.77;
  • Citigroup (C) +$0.20 (0.4%) to $49.64;
  • Wal Mart (WMT) +$0.19 (0.39%) to $49.51;
  • I.B.M. (IBM) -$0.58 (0.69%) to $83.13;
  • Intel (INTC) -$0.09 (0.34%) to $26.63;
  • Cisco Systems (CSCO) +$0.19 (1.09%) to $17.69;
  • eBay (EBAY) -$0.07 (0.15%) to $45.29;
  • Fannie Mae (FNM) -$0.42 (0.87%) to $47.93; and
  • Freddie Mac (FRE) -$0.15 (0.23%) to $65.16.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2009 to 1291 for a single-day A/D reading of 718; and Nasdaq losers exceeded gainers by 1558 to 1482. The 10-day moving average of the A/D line rose to 275.6 on the NYSE, while the 10dma of the Nasdaq A/D fell to -15.4.

NYSE advancing volume exceeded volume in decliners by 1421.9 to 700.3 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 1100.2 to 585.2 million shares.

157 NYSE-listed stocks rose to new 52-week highs, and 114 posted fresh 52-week lows, while on the Nasdaq there were 132 stocks that hit new 52-week highs, and 41 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1421.87585.17
Declining Volume (m)700.341100.19
New Highs157132
New Lows11441

Market Sentiment Statistics
CBOE Volatility Index10.48-0.63-5.67%
CBOE Nasdaq Volatility Index13.79-0.43-3.02%
Equity Put-Call Ratio0.610.0712.96%
10-day PCR0.5800%
SPX-VIX Ratio121.47.366.46%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 8.0 bps to 4.657%. The 30-year bond rose a full point, and should be shorted. I have been saying for some time that da Boyz are set to defend a 4.75% yield (i.e., to prevent yields from rising above that level and causing dilocation in the mortgage market) but frankly bondholders (and mortgage CDO and ABS holders) are nbot being adequately compensated for the risk they are carrying - particularly when you consider the volume of those instruments that are being held by foreigners who also face currency risk. At some stage - and quite soon - these folks will throw in the towel.

The middle of the yield curve was broadly higher: five year yields fell to 4.363%, and ten-year yields fell to 4.45%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 3.0 bps tighter at 12.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 69.0 bps for 10-year AAA, and 96.0 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 11.0 bps wider at 27.0 basis points and the 10-year AAA-A spread 1.0 bps wider at 0.0 bps.

Treasury Yields
UST 13wk (yld)3.802-0.025-0.65%
UST 2Y (yld)4.34-0.07-1.59%
UST 5Y (yld)4.363-0.074-1.67%
UST 10Y (yld)4.45-0.085-1.87%
UST 30Y (yld)4.657-0.08-1.69%

The Banks Index advanced 0.78 points (0.74%), to end the session at 105.78; within the index,

  • Golden West Financial (GDW) +$2.40 (3.69%) to $67.42;
  • Washington Mutual (WM) +$1.24 (2.89%) to $44.18;
  • Comerica (CMA) +$1.47 (2.6%) to $58.03;
  • Wells Fargo (WFC) +$0.82 (1.3%) to $64.02; and
  • North Fork Bancorp (NFB) +$0.26 (0.94%) to $27.98.

The Broker-dealer Index rose 1 points (0.51%), to 196.31; the ticket clippers lined up as follows -

  • Ameritrade (AMTD) +$0.64 (2.69%) to $24.40;
  • Charles Schwab (SCH) +$0.36 (2.38%) to $15.46;
  • E*Trade (ET) +$0.35 (1.74%) to $20.47;
  • A G Edwards (AGE) +$0.56 (1.25%) to $45.42; and
  • Raymond James (RJF) +$0.20 (0.53%) to $37.73.

The Philadelphia SOX (Semiconductor) index slid 2.07 points (0.41%), to end the session at 500.77

  • Freescale Semiconductors (FSL-B) -$0.65 (2.38%) to $26.68;
  • Taiwan Semiconductors (TSM) -$0.23 (2.34%) to $9.60;
  • Micron Technology (MU) -$0.31 (2.24%) to $13.53;
  • KLA-Tencor (KLAC) -$1.12 (2.1%) to $52.17; and
  • ST Microelectronic (STM) -$0.23 (1.23%) to $18.52.

Gold & Silver Markets

Gold fell by $14.60 (2.79%) to close at $509.50 per ounce. "And lo, he Ranted wonderly wroth and foretold of falling prices for gold, and lo, it came to pass..."

The Gold Bugs Index declined 6.7 points (2.58%), at 252.77

  • Hecla Mining (HL) -$0.29 (7.9%) to $3.38;
  • Goldcorp (GG) -$0.80 (3.9%) to $19.73;
  • Meridian Gold (MDG) -$0.69 (3.41%) to $19.54;
  • Freeport McMoran (FCX) -$1.86 (3.38%) to $53.15; and
  • Randgold Resources (GOLD) -$0.48 (3.11%) to $14.96.

Silver fell by $0.12 (1.4%) to close at $8.47 per ounce. 

The Gold and Silver Index (XAU) lost 3.05 points (2.48%), to 119.9 points.

  • Durban Rooderpoert Deep (DROOY) -$0.08 (5.56%) to $1.36;
  • Goldcorp (GG) -$0.80 (3.9%) to $19.73;
  • Meridian Gold (MDG) -$0.69 (3.41%) to $19.54; and
  • Freeport McMoran (FCX) -$1.86 (3.38%) to $53.15.
Precious Metals and Indices
PHLX Gold and Silver Index119.9-3.05-2.48%
AMEX Gold BUGS Index252.77-6.7-2.58%

Oil Market

Oil lost ground, shedding $0.52 per barrel, closing at $60.85 per barrel despite a modest drawdown in Crude Oil inventories. 

The Oil and Gas Index (XOI) rose 11.76 points (1.15%), to 1032.91

  • Marathon Oil (MRO) +$2.31 (3.73%) to $64.24;
  • Amerada Hess (AHC) +$2.74 (2.12%) to $131.69; and
  • Repsol YPF (REP) +$0.45 (1.5%) to $30.50.

The Oil service stocks (OSX) Index gained 2.7 points (1.44%), ending the day at 190.68

  • Schlumberger (SLB) +$2.78 (2.78%) to $102.88;
  • Noble Corp (NE) +$1.55 (2.12%) to $74.60; and
  • Baker Hughes (BHI) +$1.26 (2.05%) to $62.70.
Energy Complex
Reuters CRB344.84-4.27-1.22%
Crude Oil Light Sweet60.85-0.52-0.85%
Heating Oil1.8450.010.46%
Natural Gas14.728-0.65-4.23%
Unleaded Gas1.6407-0.01-0.32%
AMEX Oil Index1032.9111.761.15%
Oil Service Index190.682.71.44%

Currency Markets

Well lookie there... the Euro is above 1.2000. It got as high as 1.2070-ish (basis EURUSD), at which point a long from 1.1835 was up a neat 100% in a little over five weeks. Sure, I got the timing horribly wrong (I was early rather than wrong) but 100% is 100% - and the trade has been kept running the entire time. Hoo-ah.

USD Exchange Rates
US Dollar Index89.85-0.64-0.71%
Australian Dollar0.75520.00090.12%
Swiss Franc1.2819-0.0117-0.9%
Canadian Dollar0.8681-0.0014-0.16%