Markets Markets Rah Rah Rah – Gooooooo Markets!
OK, that's all the cheerleading you'll get out of me, you can go to every major media network or read 400,000 other financial writers if you need to feel good about buying but I am still VERY concerned!
I detailed some of my skepticism in yesterday's wrap-up so we'll just go with the fresh stuff this morning:
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Shanghai A-shares off 1.5% this morning
- Was it the dreaded 4,444 looming again?
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Shanghai B-shares off 2% this morning
- Are International buyers superstitious about coming within 20% of the May high?
- BSC (the ones who I derided for bailing out sub-prime lenders in the spring) is closing its "High-Grade Structured Credit Strategies Enhanced Leverage Fund" because the investments were in fact low-grade, poorly structured, over-leveraged strategic mistakes (but they sure were leveraged!). This earns BSC our GWB "Mission Accomplished" award for the most ridiculous use of the English language to attempt to cover up a defective policy or strategy. Had BSC not been facing margin calls for over-enhancing that leverage, we may have had to rename the award!
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Speaking of GWB, his approval rating slipped to 29% – this means if you are sitting somewhere and you look to the person on the left and the person on the right, there is now a 4% probability that NONE of you think the President is doing a good job.
- Amusing though that may be, it's not good for the economy when people have no faith in our leadership.
- The poll shows the 52% of Americans want the Democrats to win the 2008 election, vs. 32% sticking with the Republicans. This kind of thing scares rich people!
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Europe's Central Banks indicate they will be raising rates
- This makes it impossible for the Fed not to raise ours.
- Bond yields in Europe are rising fast on concerns about global inflation and an equity collapse.
Other than China, Asia is had a good morning. Even the Hang Seng put up a 288-point gain, pretty much ignoring the action on the mainland exchanges. Exporters are having a field day on the rising dollar and the commodities are making a comeback on the "strength" of the US economy as the Beige Book gave us a real Goldilocks story yesterday.
Our PPI came in a .9% – that's for ONE MONTH – but don't worry, the "core" PPI was just .2% so we're going to pretend everything is just great! For the year, Producer Prices are up 4.1% which one would think is "too hot" but if we're willing to believe that 3 bears come home to find a little girl in their bed and aren't picking her out of their teeth after dinner, then we're willing to believe any sort of nonsense the pundits throw at us.
GS had a beat, but not the huge ones we are used to and BSC came in a little light so let's beware the brokers today. Our markets still look good and Happy Trading and I will be watching that S&P chart very closely today as they came just inches away from failing yesterday:
What we REALLY don't want is for 1,515 to form a ceiling, a "lower high" for the S&P. For me, this is one of those times when I have to bite my tongue and wait it out for a couple of days. As tempting as it is to jump on the bandwagon, I've looked at the wheels and we're missing more than a few lug nuts!
David Fry was unimpressed with yesterdays "bond rally" which has a long way to go before it can really be called more than a bounce.
Eli Hoffman points out that FRE lost .46/share, way down from last year, when they made $2Bn ($2.80). The 15 analysts who cover this $43Bn corporation must have been drinking Bernanke's Kool Aide as not one of them had a sell rating on the stock and the average estimate was for earnings of $1.01 with the lowest coming in at .62.
"Freddie Mac said it will cease buying subprime mortgages and those with a "high likelihood" of default. Freddie Mac and its larger competitor Fannie Mae have about $170 billion in subprime mortgage-backed securities."
Spillover, what spillover? I don't see any spillover do you? Let's keep a close eye on FRE shares today to see just how "baked into the cake" these numbers really are.
Barry Rhitholz had a great article yesterday on why bonds are such a major threat to the market and I urge people to consider this as I will urge caution, caution, caution ahead of the weekend. We've had a fantastic month, a fantastic quarter, a fantastic year-to-date – it's time to take a little more off the table and protect what we have. If this rally has legs, we have 6 months to "go for it."
Am I being overly cautious? Perhaps – I could just urge caution, caution and leave off the third one but I'm feeling pretty cautious. Energy prices are heading higher, not lower and the strong rally in commodities indicates that those cartels are willing to push our economy to the breaking point.
We have our natural gas inventories today but a bearish oil inventory report didn't stop the roaches from leading a big rally in the oil patch so we'll see what they do with what ZMan projects will be a 95Bcf build. As if it matters, crude oil stocks are back at the top of the 5-year range, where logic would dictate we get a sell-off but the gasoline importers have taken a page out of the oil importers playbook and started to slow down imports, which were off 2.4M barrels last week despite record prices being offered in the Western US.
Now there is a legitimate macro scenario for this: East Coast gas strips fall causing a company to divert a tanker or two full of gasoline from Texas to California, adding days to the trip and causing a shortfall in imports which were not needed anyway as, despite record prices, we are very well stocked with gasoline. So we won't accuse these crooks of simply parking their tankers next to the oil tankers that have been sitting in the Gulf for weeks waiting for you to pony up $70 per barrel to offset their storage costs. See – I'm fair and balanced!
Oil at $67 will be bad if they hold it but also perhaps a good shorting opportunity if they fail. We'll be watching the usual suspects, VLO, TSO, XOM, SU… for nice tops and perhaps enter a few July puts in case nothing blows up over the weekend (but let's keep our fingers crossed for something truly tragic to happen in the World for all you oil bulls!).
Watch gold to see if the World is worried about inflation or not as well as our treasuries but judgment will probably be reserved until we see tomorrow's CPI report. The dollar has not real resistance all the way up to 84, where it faces a big test at the 200 dma but we'll be spending our day cleaning up our virtual portfolios ahead of expiration and maybe scalping a few day trades to pass the time.
Have a great day!
