TGIF!

The music must change!

"The music must change
For we’re chewing a bone
We soared like the sparrow hawk flied
Then we dropped like a stone
Like the tide and the waves
Growing slowly in range
Crushing mountains as old as the Earth
So the music must change"

That’s the song I have going through my head this morning because, so far, it’s been the "Same Old Song" all week and I remain unimpressed by market movements that have been full of sound and fury but, ultimately, have signified nothing.

So let’s get this week over with and get to next week where we have some real data.  Did I say data?  Sorry, I meant DATA!  Usually I wait until next week to post the Briefing.com Economic Calendar but I’m just so darned excited about next week I just can’t wait:

I know you must be as excited as I am but we’ll just have to contain ourselves until Monday morning when we find out just how many homes are stacked up waiting for buyers in the reporting period BEFORE the rates jumped a quarter point in one week.  Will the consumer still be confident as oil rose from $63 to $69.97 in the first 3 weeks of June?  Will our GDP really be a rockin’ .6% and will that cause another buying frenzy on Wall Street? (for those of you new readers, this is where I find I need a "sarcasm" font)  Will personal spending continue to rise faster than personal income?  Will the Core PCE. which was .149% at last report, remain at .1%  or could $70 oil have leaked .01% into the core? 

If any of this stuff has you worried, it should.  The only good news we can count on is the Fed, who haven’t had a bad word to say about our economy since Bush got to replace Greenspan with a man he test-drove as Chairman of his Council of Economic Advisors (giving Karl Rove the chance to put a chip in his head some say!).  Wikipedia has a good summary on Bernanke and I particularly like this excerpt:

"In 2002, when the word "deflation" began appearing in the business news, Bernanke gave a speech about deflation. In that speech, he mentioned that the government in a fiat money system owns the physical means of creating money. Control of the means of production for money implies that the government can always avoid deflation by simply issuing more money. (He referred to a statement made by Milton Friedman about using a "helicopter drop" of money into the economy to fight deflation.) Bernanke’s critics have since referred to him as "Helicopter Ben" or to his "helicopter printing press". In a footnote to his speech, Bernanke noted that "people know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation."

While a free and easy Fed may not be the entire reason for our recent market fortunes, I sure want to be wearing my hard hat when something besides treasury notes starts dropping from Uncle Ben’s helicopter.

Speaking of dropping, how about that Shanghai Composite?  Down 3.3%% on the day as they opened at 4,439, posted a quick 4,444 (uh-oh!) and quickly dropped 145 points.  This was all the less superstitious foreign investors had to see as the B-Shares accelerated a week of selling with a 5.7% drop into the weekend.  The rest of Asia was down, but not too much as they have adopted my policy of ignoring the Shanghai Exchange.  The reason for today’s sell-off (and they find a new reason every day it seems) is fears of tightening from the Chinese Central Bank.

Europe has been heading straight down since the open and our own pre-markets look shaky with no particular bad news (but then again, we can see what’s coming) and the 30-year plowed through 5.3% in early trading.  I said yesterday it was ridiculous to trade the market up on BSC’s "recovery" and it does turn out that the firm is borrowing $3.2Bn to stop creditors from seizing its hedge fund assets.  This is nothing compared to what will happen if the oil bubble bursts…

Let’s see how we handle those resistance zones today; we really don’t want to see our indices breaking below the 50 dmas (well, I sort of do as I’m still pretty short on the whole).  We still need oil to fall in order to save the markets and boy do they have a long way to go! 

Remember that high rates drive demand for the dollar which lowers the relative value of other commodities (and stocks and homes are a commodity too!) which can spur sell-offs that create additional demands for dollars (as commodities are converted back to dollars) which raises rates which drives demand for the dollar which lowers the relative value of other commodities (and stocks and homes are a commodity too!) which can spur sell-offs that create additional demands for dollars (as commodities are converted back to dollars) which raises rates….

I don’t play the currency market but I’d say we could be heading into a bit of a short squeeze on the dollar so let’s watch that 83 mark as well as the $650 line for gold, which has held up very well since March.

I don’t care what the market does today, let’s take any upward movement as an opportunity to tighten up our covers as, on the whole, I’d rather be able to sleep well ahead of all this data.  We have the much anticipated BX IPO (they weren’t brave enough to take the symbol BS), which could give us a lift as well as Russell rebalancing, which causes interesting moves and Bernstien upgraded the whole internet sector so my long cover play would be the FDN, which I’ve been watching for a pop and bounced hard off $25.25 yesterday and the VERY THINLY TRADED $25 calls have a low premium at $1.18 and make a nice momentum play.  Another ETF to watch is the IGM (and the G stands for "Google") where I like the Sept $55s at $3.45 because I can sell the July $55s for $2.40 or better on a nice run.  Both of these are, of course, wholly dependent on GOOG, EBAY and AMZN taking off but make more sense than chasing those high-premium issues.

Have a great weekend and be careful out there,

– Phil