Monday, August 08, 2011

Stocks Plunging into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, US Debt/Tax Hike Worries, Margin Selling


Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Every Sector Declining
  • Volume: Heavy
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 44.09 +37.78%
  • ISE Sentiment Index 92.0 +7.43%
  • Total Put/Call 1.43 +15.32%
  • NYSE Arms 1.05 +83.46%
Credit Investor Angst:
  • North American Investment Grade CDS Index 108.92 +2.97%
  • European Financial Sector CDS Index 198.82 +12.41%
  • Western Europe Sovereign Debt CDS Index 291.83 -1.46%
  • Emerging Market CDS Index 289.76 +16.38%
  • 2-Year Swap Spread 29.0 +4 bps
  • TED Spread 25.0 -2 bps
Economic Gauges:
  • 3-Month T-Bill Yield .02% +2 bps
  • Yield Curve 210.0 -16 bps
  • China Import Iron Ore Spot $178.10/Metric Tonne +.06%
  • Citi US Economic Surprise Index -72.50 +3.6 points
  • 10-Year TIPS Spread 2.18% -6 bps
Overseas Futures:
  • Nikkei Futures: Indicating -325 open in Japan
  • DAX Futures: Indicating -190 open in Germany
Portfolio:
  • Lower: On losses in my Retail, Medical, Biotech and Tech sector longs
  • Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 break through more technical support with heavy volume on rising eurozone debt angst, US tax hike/debt downgrade concerns, financial sector pessimism, margin calls, emerging market inflation fears and global growth worries. On the positive side, Computer Service and Semi shares are holding up relatively well, falling less than -4.0%. The UBS-Bloomberg Ag Spot Index is falling -2.38% and oil is plunging -7.4%. The Spain sovereign cds is falling -13.08% to 352.04 bps, the Portugal sovereign cds is falling -5.06% to 8722.40 bps and the Ireland sovereign cds is falling -3.49% to 747.32 bps. On the negative side, Homebuilding, Oil Tanker, Coal, Alt Energy, Energy, Oil Service, Steel, Disk Drive, Networking, Bank, I-Banking, Hospital, Gaming and Construction shares are plunging more than -8.0%. Gold is +3.06%, Lumber is falling another -1.97% and Copper is down -4.7%. Rice is down just -.15% and is still near a multi-year high, soaring about +24.0% in about 6 weeks. The US price for a gallon of gas is falling -.04/gallon today to $3.66/gallon. It is up .52/gallon in about 6 months. The Brazil sovereign cds is rising +6.66% to 138.84 bps, the Hungary sovereign cds is rising another +5.51% to 382.78 bps, the Russia sovereign cds is rising +6.67% to 181.83 bps, the UK sovereign cds is rising +3.74% to 78.85 bps, the France sovereign cds is rising +9.98% to 159.22 bps and the Germany sovereign cds is rising +6.03% to 78.72 bps. The France sovereign cds is making a new record high again today and has risen +68.0 bps in 12 days. The German sovereign cds is hitting another multi-year high and is only 14.0 bps from its Feb. 09 high of 93.0 bps. The Eurozone Financial Sector CDS Index is now only 10.0 bps from its March 09 record high. The 3-Month Euribor-OIS spread is jumping another +8 bps to a multi-year high of 54.0 bps. Asia was down sharply overnight with Singapore, Shanghai and Korea all falling more than -3.0%. The Shanghai Composite is now down -10.01% ytd and India's Sensex is down -17.15% ytd. The China Development Bank, which lends to local governments, cds is breaking out to a multi-year high today, rising +11.0 bps to 188.0 bps. Australia(-16.3% ytd), Taiwan(-15.8% ytd) and Vietnam(-18.2% ytd) shares also continue to lead Asia lower. Turkey plunged another -7.1% today and is down -20.8% ytd. Brazil plunged another -7.56% today and is down -33.0% since Nov. 4th of last year(-29.1% ytd). Germany's DAX has broken down badly over the last 6 days and is now down -14.33% ytd. Gauges of investor angst spiked again today, which is a big positive. However, the surge in many key emerging markets cds remains a big negative. As well, a number of key European cds rose again today as the pressure on the financial sector mounts. As well, the euro currency couldn't rally today despite the US downgrade and the ECB's recent actions. The cds and equity markets are clearly telegraphing the worry among investors over the implications to Germany and France of these actions. In my opinion, it is hard to see France maintaining its AAA rating in light of these developments and the US downgrade. As well, the European model of slashing govt. spending and hiking taxes in an already poor economy will continue to lead to a further deterioration in economic growth in the region and thus more govt tax revenue disappointments. Moreover, considering that stock gains over the last couple of years had been a bright spot, the magnitude of recent losses will likely lead to a negative drag on real economies, which will further exacerbate global debt worries. Stocks are massively oversold around current levels and short-term traders should be ready for a meaningful bounce very soon, however the intermediate-term outlook remains weak. I expect US stocks to trade mixed-to-lower into the close from current levels on rising eurozone debt angst, global growth worries, US debt/tax hike concerns, technical selling, margin selling and financial sector pessimism.

1 comment:

Tim- said...

Gary,
falling stock prices will cause deflation by way of weakening demand for final good and services. QE3 will happen and it will be bigger than QE2! you sight commodity price rises to be the result of quantative/central bank monetizing programs, but higher prices leads to increasing mining/drilling capacity and production. long term that will take care of high prices. why do you think QE is such a negative?