Monday, August 20, 2012

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Eurozone Debt Angst, Rising Food Prices, Tech Sector Weakness


Broad Market Tone:

  • Advance/Decline Line: Lower
  • Sector Performance: Mixed
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 14.11 +4.91%
  • ISE Sentiment Index 95.0 -35.81%
  • Total Put/Call 1.01 +34.67%
  • NYSE Arms .85 -26.21%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.65 bps -.96%
  • European Financial Sector CDS Index 234.74 bps -3.0%
  • Western Europe Sovereign Debt CDS Index 229.92 -3.88%
  • Emerging Market CDS Index 245.84 -.15%
  • 2-Year Swap Spread 21.0 -.25 basis point
  • TED Spread 34.75 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -35.25 +.25 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .09% +1 basis point
  • Yield Curve 153.0 unch.
  • China Import Iron Ore Spot $109.30/Metric Tonne -.82%
  • Citi US Economic Surprise Index -16.10 +2.0 points
  • 10-Year TIPS Spread 2.25 -1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +14 open in Japan
  • DAX Futures: Indicating +3 open in Germany
Portfolio:
  • Slightly Lower: On losses in my Retail, Biotech and Tech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, then covered some of them
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is just mildly bearish as the S&P 500 trades slightly lower despite eurozone debt angst, high food/energy prices, US "fiscal cliff" worries and rising global growth fears. On the positive side, Coal, Steel, HMO and Airline shares are especially strong, rising more than +.75%. Oil is falling -.4%. Brazilian shares are rising +.5%. The Germany sovereign cds is down -.7% to 55.72 bps, the France sovereign cds is down -2.1% to 126.33 bps, the Italy sovereign cds is down -.97% to 417.57 bps, the Spain sovereign cds is down -1.7% to 468.38 bps, the UK sovereign cds is falling -2.0% to 54.17 bps and the Israel sovereign cds is down -2.2% to 166.37 bps(+11.0% in 5 days). Moreover, the Spain 10Y Yld is falling -2.5% to 6.28%. On the negative side, Oil Tanker, Semi, Networking, Homebuilding and Retail shares are especially weak, falling more than -1.0%. Small-caps are underperforming. Homebuilding and tech shares have traded heavy throughout the day. Lumber is falling -1.9%, Gold is rising +.4%, Copper is falling -1.3% and the UBS-Bloomberg Ag Spot Index is gaining +1.5%. Major Asian indices were mostly lower overnight, led down by a -.4% decline in China. The Shanghai Property Stock Index fell another -1.3% and is down -14.2% in less than 6 weeks. Major European indices are lower today, led down by a -1.2% decline in Spain. The Bloomberg European Bank/Financial Services Index is -1.4% lower on the day.The UBS/Bloomberg Ag Spot Index is up +25.6% since 6/1. The benchmark China Iron/Ore Spot Index is down -39.6% since 9/7/11. Moreover, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that the Eurozone has successfully kicked-the-can and global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +1.9%. US Trucking Traffic continues to soften. Moreover, the weekly MBA Home Purchase Applications Index has declined for 5 straight weeks and has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -65.0% from its Oct. 14th high and is now down around -55.0% ytd. Shanghai Copper Inventories have risen +218.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is the lowest since May, 2009. The CRB Commodities Index is now down -17.7% since May 2nd of last year despite the recent surge in food/energy prices. The 10Y T-Note continues to trade too well, despite recent mild weakness. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It still remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Focus Magazine reported recently that a poll by TNS Emnid found that 52% of Germans don’t want European countries to share debt even if the EU takes control over budgets of individual countries, while 31% were in favor of this. The Citi Eurozone Economic Surprise Index is at -59.30 points. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Little if anything being discussed by global central bankers will actually boost global economic growth in any meaningful way over the intermediate-term, in my opinion. The odds of imminent QE3, which were already lower than perceived in my opinion, are likely plummeting with the recent surge in stock prices, inflation expectations, rising gas prices, worrisome food crisis headlines and less pessimistic US economic data. As well, I continue to believe a new massive China stimulus round isn’t as likely as perceived as worries over their real estate bubble and soaring food prices intensify. The quality of the recent stock rally remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/transports divergences all continue to be concerns. Thus, recent market p/e multiple expansion on global central bank stimulus/action hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. The explosion higher in the Israel sovereign cds(+32 bps in about 2 weeks) is another big red flag. The Mid-east appears to be unraveling again at an alarming rate. For this year's equity advance to regain traction, I would expect to see further European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower food/energy prices, a US "fiscal cliff" solution, a calming in Mid-east tensions and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on eurozone debt angst, profit-taking, more shorting, high food/energy prices, US "fiscal cliff" concerns, growing Mid-east unrest and rising global growth fears.

1 comment:

theyenguy said...

You write It still remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Focus Magazine reported recently that a poll by TNS Emnid found that 52% of Germans don’t want European countries to share debt even if the EU takes control over budgets of individual countries, while 31% were in favor of this.

As a believer of bible prophecy of Daniel 2:30-33, I unequivocally believe that the Eurozone will take the lead in pooling sovereignty via regional framework agreements and implement regional governance, where totalitarian collectivism will rule most all of current Eurozone countries, with the possible exception of Finland; and that Germany will be preeminent in a type of revived Roman Empire, where a shrewd leader, Daniel 9:25, will rise to power over vassal peripheral states, Revelation 13:1-4.

The investment demand for gold continues The chart of Gold, GLD, shows a 0.3% rise on Monday; it has been in breakout since August 1, 2012. And the chart of Silver, SLV, shows a 2.6% rise on Monday. The ongoing Yahoo Finance chart of Silver, for the last month, shows that it has been rising more strongly than Gold: six percent vs three percent.