|
Daily State of the Markets |
I received a note from a reader this weekend in which he opined, “Whenever I see the prices of the same assets valued at two different extremes over such a short period, I can’t help but think of manipulation by the big boys.” While this may sound a bit farfetched to many, frankly, I don’t think this is that far off base.
But no, I’m not a “conspiracy theory” follower and I don’t think the game is rigged against the little guy these days. However, I can say with a relative degree of certainty that there is more going on right now than meets the eye and more than the popular press is reporting on. And I am also of the opinion that the lack of reporting has more to do with a lack of understanding than a purposeful intent to mislead.
What prompted the note from the reader this weekend was my report on the “Unlucky Seven” reasons for the current corrective action. While the article covered the bases and rounded up the usual suspects; in rereading the report, I realized that I did not spend near enough time on the primary source of the recent volatility – the linkage and the computer programmed trading tied to the movement in the dollar and interest rates.
Since I’m not a hedge fund, an investment bank, or a sovereign investment fund manager, I don’t spend much time thinking up ways to utilize the “dollar carry trade.” And to be honest, I don’t fully comprehend the intricacies of the trade. But apparently, this has been what the action in the stock market is all about for the past week.
The game really got started last Monday when, out of nowhere, the U.S. Dollar reversed course and broke above a near-term resistance level. From there, the relationship with the stock market and interest rates for the remainder of the week was pretty straightforward: when the dollar rose, stocks fell and vice versa. For example, on Tuesday, the dollar padded its gains from Monday’s pop and both the stock market and the bond prices fell. Wednesday was an instant replay but with some more oomph behind the moves as the greenback hit its highest level since early in the month and stocks tanked. On Thursday, we got the strong economic number, which logically pushed stock and bond yields higher while the dollar broke lower. And while everybody (including yours truly) was talking about traders having second thoughts about the sustainability of the economic growth rate going forward on Friday, the bottom line is, yep, you guessed it – the dollar was seen rising again and stocks got smoked for a loss of 250 Dow points.
The dance to the downside occurred on Friday despite the fact that there really wasn’t any bad economic news, no surprisingly weak earnings, and no big analyst catalyst. In fact, the Chicago PMI came in well above expectations while the University of Michigan’s Confidence index was flat (i.e. it was not a bad number).
The bears are quick to point out that Calayon’s projection that Citi (C) would need to write down about $10 billion in the fourth quarter, the fact that consumer spending fell 0.5% last month, and Wilbur Ross’s “ticking time bomb” comments about commercial real estate weren’t exactly positives. And it is probably true that the dip-buyers were most likely in stand-aside mode on Friday. But the bottom line is that once again, the dollar rose and stocks fell. Thus, this is definitely something to watch closely going forward, because as the always cheerful Nouriel Roubini said last week, the unwinding of the “Dollar Carry Trade” could cause a global market meltdown.
Turning to this morning, we don’t have any economic data in the U.S. to look at before the opening bell. But we do have some big events this week as the Fed will give us their take on the economy and monetary policy on Wednesday and then we’ll get the Big Kahuna – the Jobs Report – on Friday.
Running through the rest of the pre-game indicators, the foreign markets are mixed with Europe fractionally higher. Crude futures are moving up with the latest quote showing oil trading higher by $0.54 to $77.54. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.42%, while the yield on the 3-month T-Bill is currently at 0.05%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 45 points; the S&P’s are up by about 5.5 points, while the NASDAQ looks to be about 3.5 points above fair value at the moment.
| Today’s Earnings Before The Bell | |||
| Clorox | CLX | $1.18 | $0.95 |
| Cooper Tire | CTB | $0.99 | $0.66 |
| Dean Foods | DF | $0.34 | $0.33 |
| Ford | F | $0.26 | -$0.12 |
| GEO Group | GEO | $0.38 | $0.35 |
| Humana | HUM | $1.78 | $1.77 |
| Overseas Shipholding | OSG | -$0.73 | -$1.08 |
| Sysco | SYY | $0.46 | $0.45 |
| Valeant Pharmaceuticals | VRX | $0.58 | $0.49 |
* Report includes items that make comparisons to the consensus estimate questionable
Wall Street Research Summary
Upgrades:
Leap Wireless (LEAP) – Citi Motorola (MOT) – Citi Weyerhaeuser (WY) – Credit Suisse Nordstrom (JWN) – Deutsche Bank Biogen Idec (BIIB) – Jefferies Plains Exploration (PXP) – JP Morgan Cooper Industries (CBE) – Morgan Stanley Biomed Realty Trust (BMR) – RBC Capital YUM! Brands (YUM) – RBC Capital PF Chang’s (PFCB) – RBC Capital BB&T Corp (BBT) – Sterne, Agee Popular (BPOP) – Sterne Agee Wolverine (WWW) – Susquehanna Estee Lauder (EL) – UBS Boston Properties (BXP) – UBS Colonial Properties (CLP) – UBS Equity Residential (EQR) – UBS SL Green Realty (SLG) – UBS Royal Caribbean (RCL) – Wells Fargo Brunswick (BC) – Wells Fargo
Kirby Corp (KEX) – BofA/Merrill Palm (PALM) – Citi Research in Motion (RIMM) – Citi Office Depot (ODP) – Credit Suisse Commercial Metals (CMC) – JP Morgan SL Green Realty (SLG) – RBC Capital
Long positions in stocks mentioned: GS, VRX, GEO
Try doing something nice for someone today (for no reason at all) and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
For more “top stock” portfolios and research, visit TopStockPortfolios.com
The opinions and forecasts expressed are those of David Moenning, founder of TopStockPortfolios.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.
Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.
The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
The information contained in our websites and TopStockPortfolios publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.
Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.
Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.
