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Well, well, well. How long ago is it that we surmised that the Euro was the optimum exposure once it became clear that the US Dollar Index had topped?
Have you forgotten? Well, I'll remind you then. It's about a month and a half. USDX was above 86, and the Euro was in the mid 1.27's (and later Rant readers were exhorted to buy $A when $A was at 0.6117).
Today USDX is back under 80, $A is above 0.6900 and Euro is the glamour story of the month, up about six cents in three sessions to today's 1.43-odd.
You see, this economics stuff works if you do it right.
You can use economics one of two ways - it can be a fairly potent tool to bamboozle people in order to get them to do the bidding of politicians and mountebanks (that's what most economic analysis entails).
Or it can be used to spot idiocy in the supposedly 'forward-looking' financial markets, the better to exploit them.
But Economics doesn't tell you much about the timing of events.
For example: the recent strength in US bond markets has absolutely no foundation in reality. There is no economic case for it - and anyone who tells you otherwise is selling something. shorting US bonds at any price above 110 (basis the ZB which is now above 140) will provide returns in excess of 1000% of margin. EVENTUALLY... probably sooner rather than later, but at the moment we are seeing a 'throwover' which is a sight to behold.
US long bonds ought to be in free-fall thanks to
- massive government debt - the growth of which is increasing;
- massive money printing (which will be massively inflationary in an economy where output is falling);
- government statistics which cannot be trusted to reflect economic reality;
- a massive ($171b per quarter) external imbalance; and
- declining rates of purchase of US treasuries by foreign governments.
Those who are prepared to assert that the US can defy these economic imbalances simply because 'the US will not default' are morons and should not be listened to: anybody who is currently holding US treasuries is guaranteed a large capital loss. I would actually take my chance in corporates - after all, spreads to investment grade corporates now average 7 full percentage points... recall that I whined and whined when the spread from AA corporates to Treasuries was less than 10bp. (This is going back a few years - I dropped the bond market from further analysis as a result, because it was being stupid by underpricing corporate bond risk... now it's doing the same with US Treasuries.)
A very very safe bet would be a long-Corporate/Short Treasuries play - betting on the corporate spread narrowing. It that spread doesn't tighten 250bp by the end of Feb 09, then you may call me Meyer.
Back to US bonds: The 'flight to quality' argument might hold water ifd you were talking about an asset which actually was quality - and US bonds are not. they are not 'rare' - and are certainly not getting rarer.
The US government does not deserve - in any sense whatsoever - to be given free money (or worse, to have its loans subsidised) and yet that is what is happening at the moment: people are accepting less than 2.5% per annum to lock money in US government debt for ten years.
Forward-looking? What a crock.
So anyhow - as I mentioned yesterday, longs in Euro (+18k per contract) and $A (+8k per contract) are still more than offsetting the losses in the short on the 30-year (-13k per contract). Net-net, each 'block' would cost about $14k to enter, and is in profit to the tune of $13k. And when the US bond reverses it is going to be the most impressive waterfall you ever saw in your life.
One last word: as I said above, economic analysis is very vague on the timing of corrections of overshot markets. For that I use technical analysis. Thus far, the US long bond has blown through every attempt to pick a top; it has diverged on daily charts and then just kept going.... twice. It is in the same unsustaionable 'parabolic' as Crude was when it was $140; this is a sign of a blowoff.
Third time is a charm though - It's over as of today or tomorrow.
Economic News
Nothing much - the crude oil inventory build was bigger than expected, but the selloff in Crude had nothing to do with that. The selloff in crude was just another bout of flagrant expiration-week manipulation.
Headline Indices
The Dow Jones Industrial Average lost 99.8 points (1.12%) to 8824.34 points. The market opened weak, and by about 10:15 a.m. had touched 8778.07 - which turned out to be the low of the day. The high for the day was 8961.10 and was set just before 2 p.m. New York time; thereafter the market was very keen to head lower, and only periodic intervention prevented a greater slide.
Total volume traded in the 30 components of the index was 969.83m shares. Decliners outpaced gainers by 4 to one, with 24 decliners to 6 advancers. Declining volume was greater than advancing volume by 880.1m to 89.73m shares. The main decliners (in percentage terms) were -
- Citigroup (C) -0.40 (4.9%) to $7.83 on volume of 152.49m shares;
- Bank Of America (BAC) -0.48 (3.2%) to $14.62 on volume of 94.86m shares;
- General Electric (GE) -0.53 (3%) to $17.39 on volume of 99.62m shares;
- Merck (MRK) -0.79 (2.8%) to $27.12 on volume of 13.86m shares; and
- AIG (AIG) -0.05 (2.8%) to $1.75 on volume of 26.56m shares.
The S&P500 index (SPX) dipped 8.76 points (0.96%) to 904.42 points. Total volume traded in the 500 components of the index was 4.02bn shares. Decliners outpaced gainers by 1.2 to one, with 263 decliners to 221 advancers. Declining volume was greater than advancing volume by 2.5bn to 1.43bn shares. The main decliners (in percentage terms) were -
- Newell Rubbermaid Co. (NWL) -3.60 (27.3%) to $9.58 on volume of 18.37m shares;
- Constellation Energy Group (CEG) -5.74 (20%) to $23 on volume of 13.05m shares;
- Genworth Financial Inc. (GNW) -0.36 (10.3%) to $3.13 on volume of 29m shares;
- National City Corp. (NCC) -0.15 (7.8%) to $1.78 on volume of 75.1m shares; and
- Omnicom Group (OMC) -2.16 (7.3%) to $27.6 on volume of 4.42m shares.
The Nasdaq Composite dropped 10.58 points (0.67%) to 1579.31 points and the Nasdaq100 fell 17.63 points (1.42%) to 1225.86 points..
Total volume traded in the 100 components of the Nasdaq100 was 953.95m shares. Advancers and decliners were evenly split, with 50 advancers to 48 decliners; however declining volume was greater than advancing volume by 654.58m to 299.37m shares. The main decliners (in percentage terms) were -
- Sirius Satellite Radio (SIRI) -0.02 (13.3%) to $0.13 on volume of 58.75m shares;
- Apple (AAPL) -6.27 (6.6%) to $89.16 on volume of 45.92m shares;
- Ryanair Holdings plc (RYAAY) -1.73 (5.4%) to $30.2 on volume of 1.5m shares;
- Virgin Media (VMED) -0.25 (5.4%) to $4.39 on volume of 3.4m shares; and
- Intuitive Surgical (ISRG) -4.77 (3.5%) to $132.08 on volume of 0.81m shares.
Volatility
The CBOE Volatility Index dipped 2.53 points (4.83%) to 49.84 points and the CBOE Nasdaq100 Volatility Index dropped 2.18 points (4.34%) to 48.04 points..
Breadth and Internals
A total of 3921 issues traded today on the NYSE; today's total volume was 5.98bn shares. A total of 2266 stocks posted gains for the day, and volume in advancing issues totalled 2.68bn shares. Exerting downwards pressure on the index were 1566 losers, which accounted for a total declining volume of 3.23bn shares. 34 stocks made new 1-year highs on the NYSE, while 93 shares plumbed new 52-week depths.
On the Nasdaq 3016 tickers traded today; total Nasdaq volume was 2.11bn shares. A total of 1496 stocks posted gains for the day, with aggregate volume of 920m shares changing hands in the day's winners. The red zone of the Nasdaq exchange comprised 1377 losers, and total declining volume was 1.17bn shares. 12 Nasdaq-listed stocks hit new 52-week highs, while 73 shares dipped to new 1-year lows.
| Major Market Statistics | |||
| Index | Close | Gain(Loss) | % |
| Dow Jones Industrial Average | 8824.34 | -99.80 | -1.12% |
| S&P500 Index | 904.42 | -8.76 | -0.96% |
| Nasdaq Composite | 1579.31 | -10.58 | -0.67% |
| Nasdaq100 | 1225.86 | -17.63 | -1.42% |
| CBOE Volatility Index | 49.84 | -2.53 | -4.83% |
| CBOE Nasdaq100 Volatility Index | 48.04 | -2.18 | -4.34% |
Dow Darlings
- General Motors (GM) +0.12 (2.8%) to $4.37 on volume of 20.5m units
- Caterpillar (CAT) +0.85 (1.9%) to $44.65 on volume of 9.6m units
- Verizon (VZ) +0.55 (1.6%) to $34.05 on volume of 17.8m units
- Home Depot (HD) +0.38 (1.6%) to $24.7 on volume of 19.8m units
- 3M Co (MMM) +0.26 (0.4%) to $58.58 on volume of 5.8m units
Dow Duds:
- Citigroup (C) -0.4 (4.9%) to $7.83 on volume of 152.5m units
- Bank Of America (BAC) -0.48 (3.2%) to $14.62 on volume of 94.9m units
- General Electric (GE) -0.53 (3%) to $17.39 on volume of 99.6m units
- Merck (MRK) -0.79 (2.8%) to $27.12 on volume of 13.9m units
- Chevron (CVX) -2.19 (2.8%) to $76.82 on volume of 20.5m units
Most Traded Dow stocks:
- Citigroup (C) -0.40 (4.9%) to $7.83 on volume of 152.5m units
- General Electric (GE) -0.53 (3%) to $17.39 on volume of 99.6m units
- Bank Of America (BAC) -0.48 (3.2%) to $14.62 on volume of 94.9m units
- Microsoft (MSFT) -0.45 (2.2%) to $19.66 on volume of 77.9m units
- Intel (INTC) -0.38 (2.4%) to $15.26 on volume of 66m units
Precious Metals
Precious metals futures continued to do the business - Gold is up almost $100 since your Beloved GT declared that two closes above $750 would mean more upside.
| Precious Metals Futures | |||
| Index | Close | Gain(Loss) | % |
| Gold | 869 | 26.3 | 3.12 |
| Silver | 11.41 | 0.705 | 6.59 |
| Palladium | 178.5 | 0.95 | 0.54 |
| Platinum | 866.8 | 17.3 | 2.04 |
The Gold Bugs index (XAU) lost -1.16 points (0.96%) to 119.67 points. Total volume traded in the 16 components of the index was 186.42m shares. Decliners outpaced gainers by 2.2 to one, with 11 decliners to 5 advancers; however advancing volume exceeded declining volume by 95.98m shares to 90.44m. The main decliners (in percentage terms) were -
- Gold Fields Ltd (GFI) -0.63 (6.3%) to $9.45 on volume of 7.89m shares;
- Harmony Gold (HMY) -0.38 (3.6%) to $10.3 on volume of 2.86m shares;
- GoldCorp (GG) -1.03 (3.3%) to $30.62 on volume of 16.36m shares;
- Kinroos Gold (KGC) -0.47 (2.6%) to $17.79 on volume of 9.88m shares; and
- RandGold Resources (GOLD) -1.08 (2.4%) to $43.6 on volume of 1.14m shares.
Energy Complex
Energy futures got absolutely hammered - this should be seen as typical expiration-week manipulation. Once the chicanery finishs, Oil is headed higher again - despite slack global demand - because the US dollar is finished as a global currency. If you want proof of that, look at how oil stocks didn't respond to the move in the oil price.
| Energy Futures | |||
| Commodity | Close | Gain(Loss) | % |
| Crude Oil | 40.45 | -3.15 | -7.22 |
| Heating Oil | 1.4543 | -0.006 | -0.41 |
| Natural Gas | 5.604 | -0.147 | -2.56 |
| Gasoline RBOB | 1.0157 | -0.0243 | -2.34 |
| Ethanol | 1.592 | 0.005 | 0.32 |
The Oil Services index (OSX) declined -0.17 points (0.13%) to 127.45 points. Total volume traded in the 15 components of the index was 93.13m shares. Decliners outpaced gainers by 1.1 to one, with 8 decliners to 7 advancers. Declining volume was greater than advancing volume by 62.22m to 30.91m shares. The main decliners (in percentage terms) were -
- Transocean Inc (RIG) -2.03 (3.6%) to $55.06 on volume of 13.63m shares;
- Global Industries (GLBL) -0.06 (1.6%) to $3.62 on volume of 1.27m shares;
- Baker Hughes (BHI) -0.49 (1.6%) to $31.03 on volume of 3.6m shares;
- BJ Services (BJS) -0.11 (0.9%) to $11.72 on volume of 5.57m shares; and
- Noble Corp (NE) -0.22 (0.9%) to $25.24 on volume of 5m shares.
Currency Futures
Currency futures have performed in line with our 'US Dollar is Done" script from back when the US Dollar Index was above 86. We've got the currency market on a string like Daicos on his best day. This has more than offset the fact that the bond market has got us by the short and curlies...
| Currency Futures | |||
| Index | Close | Gain(Loss) | % |
| U.S. Dollar Index | 79.685 | -1.91 | -2.34 |
| Euro FX | 1.4313 | 0.0369 | 2.65 |
| Swiss Franc | 0.9304 | 0.0407 | 4.57 |
| Australian Dollar | 0.6955 | 0.0076 | 1.1 |
| Canadian Dollar | 0.834 | 0.0097 | 1.18 |
| Japanese Yen | 1.1379 | 0.0171 | 1.53 |
| New Zealand Dollar | 0.586 | 0.0183 | 3.22 |
Bellwethers
The nine-stock group that makes up the Rant bellwethers declined on average by 2.8%. The fallout occurred as follows:
- General Electric (GE) -0.53 (2.96%) to $17.39 on volume of 99.64m units.
- Citigroup (C) -0.4 (4.86%) to $7.83 on volume of 152.52m units.
- Wal-Mart (WMT) -0.05 (0.09%) to $55.19 on volume of 21.9m units.
- IBM (IBM) -0.56 (0.65%) to $85.84 on volume of 8.3m units.
- Intel (INTC) -0.38 (2.43%) to $15.26 on volume of 66.05m units.
- Cisco Systems (CSCO) -0.58 (3.33%) to $16.84 on volume of 61.94m units.
- Google (GOOG) -10.04 (3.09%) to $315.24 on volume of 5.75m units.
- Fannie Mae (FNM) -0.04 (5.48%) to $0.69 on volume of 15.84m units.
- Freddie Mac (FRE) -0.02 (2.74%) to $0.71 on volume of 8.73m units.
Other Indices of Interest...
The Banks index (BKX) slid 0.75 points (1.64%) to 44.98 points. Total volume traded in the 24 components of the index was 571.12m shares. Decliners outpaced gainers by 2.3 to one, with 16 decliners to 7 advancers. Declining volume was greater than advancing volume by 480.3m to 90.81m shares. The main decliners (in percentage terms) were -
- National City (NCC) -0.15 (7.8%) to $1.78 on volume of 75.1m shares;
- PNC Financial (PNC) -3.22 (6.5%) to $45.98 on volume of 7.01m shares;
- Fifth Third Bancorp (FITB) -0.48 (6%) to $7.51 on volume of 14.68m shares;
- Citigroup Inc (C) -0.40 (4.9%) to $7.83 on volume of 152.49m shares; and
- Keycorp (KEY) -0.35 (4%) to $8.33 on volume of 6.34m shares.
The Semiconductor index (SOX) lost 0.35 points (0.16%) to 221.16 points. Total volume traded in the 18 components of the index was 240.21m shares. Decliners outpaced gainers by 1.3 to one, with 10 decliners to 8 advancers. Declining volume was greater than advancing volume by 170.91m to 69.3m shares. The main decliners (in percentage terms) were -
- Infineon Tech (IFX) -0.06 (6.1%) to $0.92 on volume of 1.54m shares;
- ST Microelectronic (STM) -0.3 (4.1%) to $6.97 on volume of 2.09m shares;
- Intel (INTC) -0.38 (2.4%) to $15.26 on volume of 66.05m shares;
- Taiwan Semiconductor (TSM) -0.2 (2.4%) to $8.19 on volume of 17.92m shares; and
- Linear Technology (LLTC) -0.41 (1.7%) to $23.66 on volume of 6.06m shares.
The ChildKiller ("Defence") index (DFX) dipped 2.95 points (1.14%) to 255.65 points. Total volume traded in the 17 components of the index was 132.29m shares. Decliners outpaced gainers by 3 to one, with 12 decliners to 4 advancers. Declining volume was greater than advancing volume by 128.64m to 3.65m shares. The main decliners (in percentage terms) were -
- Embraer Empresa (ERJ) -0.83 (4.8%) to $16.41 on volume of 1.02m shares;
- General Electric (GE) -0.53 (3%) to $17.39 on volume of 99.62m shares;
- ITT Corporation (ITT) -1 (2.2%) to $45.11 on volume of 2.59m shares;
- FLIRr Systems (FLIR) -0.58 (2.2%) to $26.3 on volume of 2.45m shares; and
- Boeing (BA) -0.88 (2.1%) to $41.02 on volume of 7.18m shares.
