Tuesday, March 01, 2011

Stocks Falling into Final Hour on Soaring Energy Prices, Growing Mideast Unrest, Technical Selling and More Shorting


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Around Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 20.37 +11.01%
  • ISE Sentiment Index 96.0 -23.81%
  • Total Put/Call .92 +10.84%
  • NYSE Arms 1.94 +79.29%
Credit Investor Angst:
  • North American Investment Grade CDS Index 83.03 +1.79%
  • European Financial Sector CDS Index 115.33 -3.28%
  • Western Europe Sovereign Debt CDS Index 173.67 bps -.86%
  • Emerging Market CDS Index 223.31 +1.51%
  • 2-Year Swap Spread 20.0 +1 bp
  • TED Spread 18.0 +1 bp
Economic Gauges:
  • 3-Month T-Bill Yield .13% unch.
  • Yield Curve 275.0 +2 bps
  • China Import Iron Ore Spot $180.10/Metric Tonne -1.48%
  • Citi US Economic Surprise Index +77.30 +2.8 points
  • 10-Year TIPS Spread 2.43% +3 bps
Overseas Futures:
  • Nikkei Futures: Indicating -154 open in Japan
  • DAX Futures: Indicating -41 open in Germany
Portfolio:
  • Lower: On losses in my Technology and Medical longs
  • Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  • Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows, despite positive economic data, less eurozone debt angst, gains in Asian equities overnight and earnings optimism. On the positive side, Drug shares are outperforming, falling less than .5%. The 10-year yield is falling -2 bps to 3.40%. The Belgium sovereign cds is falling -2.3% to 169.67 bps. The Israel sovereign cds is falling -2.88% to 166.18 bps, which is also a big positive. The UBS-Bloomberg Spot Ag Index is dropping -.22%. On the negative side, Airline, Road&Rail, Gaming, REIT, Homebuilding, Bank, Networking, Disk Drive, Computer, Steel, Oil Service, Oil Tanker and Alt Energy shares are under significant pressure, falling more than 2.0%. Small-Cap and Cyclical shares are underperforming. The Transports continue to trade poorly. The Saudi sovereign cds is rising +1.67% to 138.79 bps. The avg. US price for a gallon of gas is up another .04/gallon today to $3.37/gallon. It is now up .25/gallon in 14 days. Oil trades technically like it is about to burst above $100 and the stock market is now starting to anticipate this. Gold is also poised to break out technically. Weekly retail sales rose +2.6% last week versus a +2.5% gain the prior week, but are down from a 3.6% increase the first week of January. The US Muni CDS Index is rising +2.91% to 161.67 bps. The US dollar put in a reversal today versus the euro. Sentiment regarding the currency is at bearish extremes. As well, the Citi US economic surprise index is at the highest level since Sept. 2008, while the Citi Eurozone economic surprise index continues to break down, falling to the lowest level since April 15th of last year. In my opinion, oil has to reverse lower very soon or more broad market weakness is likely in store. I expect US stocks to trade mixed-to-lower into the close from current levels on higher energy prices, growing Mideast unrest, more shorting, technical selling and profit-taking.

1 comment:

theyenguy said...

March 1, 2010 is a day that will live in finacial infamy as it confirmed the that the seigniorage of the Milton Friedman Free To Choose Currency Regime, which was based upon Quantitative Easing and Quantitative Easing 2, failed on February 22, 2011, when the distressed securities taken in by the Federal Reserve under its TARP Facility traded lower, as is seen in the Fidelity mutual fund FAGIX trading lower. This resulted in world stocks, ACWI, turning lower.

Today, March 1, 2011, seigniorage continued to fail, as is seen in FAGIX, continuing to fail, which induced the banks, KBE, to trade 2.1% lower and world stocks, ACWI, to trade 1.4% lower.

We live in a bank centric and also an oil centric world. The world’s leading banker Ben Bernanke, in a semiannual report to Congress, told politicians that commodity price inflation, and oil prices more specifically, could pose a threat to economic growth and price stability if sustained at high levels, while at the same time reassuring markets and politicians that inflation remained low and expectations stable according to Forbes Blog.

Leading the Banks lower were the institutions which rose in value the most during the last two years under Ben Bernanke’s expanding seigniorage. These included Fifth Third Bancorp, FITB,
Huntington Bankshares, HBAN, Regional Financial, RF. Bank of America, BAC, Citigroup, C, Wells Fargo, WFC and Sun Trust Banks, STI.

The contraction of seigniorage, that is moneyness, is the root cause of the failure of stock markets worldwide, VT, -1.7%,

The contraction of seigniorage seen in the fall of the distressed securities mutual fund FAGIX means the beginning of the end of credit as it has traditionally been known.

The world did not witness debt deflation today, as much as it witnessed inflation destruction, which Urban Dictionary defines as the fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies. Companies falling massively to inflation destruction included.

Bruce Krasting reports “Senator Shelby asked Bernanke to explain how he came to the $600b QE2 program. The answer came at minute 32 of this C-SPAN clip. Ben explained that he felt that a monetary ease equivalent to a 75 BP reduction in the Fed Funds rate was in order to avoid deflation. He equated $150-200 billion of QE as being equivalent to a 25BP reduction in short term rates. The justification for QE all along has been that monetary policy is range bound by zero interest rates. QE brings us below “0” in equivalent policy.” The sum of QE 1, QE lite (the top off of QE1) and QE2 is $2.35 trillion. Using Bernanke’s formula you get a range of 4% to 5% as the approximate interest rate consequence of QE. (2.35/.15 or 2.35/.2) That is an extraordinary number. The Fed’ ZIRP policy set interest rates at zero. QE has brought that to -4.5% (average) based on Ben’s numbers.”

The world is passing has passed through an inflection point: the world has passed from the Age of Leverage and into the Age of Deleveraging with the exhaustion of Quantitative Easing and with the failure of yen carry trade investing, as seen in the failure of the Optimized Carry ETN, ICI, on the very day that QE 2 was announced.

The Age of Leverage was characterised by debt expansion, credit liquidity, stability, economic growth and expansion and prosperity … The Age of Deleveraging is characterised by inflation destruction, debt deflation, credit ill-liquidity, instability, economic contraction and austerity.