Well that was no fairy tale ending to our Disney day!
What a total mess… I have little to say about today's action as the selling was relentless and made me question my premise but David Tsao's excellent post on the ISM reminded me of why I refuse to turn into one of the three bears just yet.
Fed President Plosser was the villain of the day, with comments that: "It is certainly true that the chances of the economy slipping into a recession have risen." Well Duh! Still, that's all it took to send the market racing back to the Jan 22nd opening levels, let us hope and pray that we don't get another day like that tomorrow!
Plosser actually also said he agrees with me and "the U.S. will skirt any recession with growth rates of around 1 percent in the first half of the year, before slowly returning toward trend growth rates in the second half" but no one was in the mood to hear that as the word recession was in it and CNBC can only use one big word per segment so they ran with recession all afternoon as traders ran away from their stocks.
Energy stocks led the slide with a 1.6% loss on the day so this is all actually going according to my plan in general, but the ulcer is an unexpected bonus as we never came near 12,450, which I said in the morning post would be our "cover and cash" point if we failed to make it on the morning rally.
There was, as I predicted, a MASSIVE build in crude – 7 MILLION barrels of crude piled up in storage and 3.6 MILLION barrels of gasoline and even distilates had a very slight build (vs. an expected 2Mb draw) EVEN THOUGH refinery utilization dropped 0.7% which works out to producing 1Mb less of refined product than last week. So, to summarize, they are not making it and nobody wants it!
13.6 Million barrels is an entire day of US imports built up in just a week, that's 14%! Let's not get too excited until we see a clear trend as it's easy to fudge this data and bury all the bad news into one week (like when the market is collapsing and nobody notices) so that they can announce 2Mb draws for the next 3 weeks. Amazingly, most analysts you see on TV still say that the recession is causing the decline in demand, as opposed to maybe $3 per gallon of gas does, in fact, alter people's usage habits after 2 years.
For whatever reason, demand destruction is treated as some kind of myth, even though Econ 101 still teaches us that reductions in demand are the expected response to rising prices in something known as the demand curve. Today's fractured fairy tale is the end of the myth that energy demand is inelastic to prices. Demand may be slow to change but as any US truck manufacturer can tell you, consumer habits do change over time, and those trends are very hard to reverse once they are set in motion.
After the market closed we got in-line earnings but a poor outlook from CSCO so it's unlikely we've seen the bottom of the Nasdaq today. EDS actually missed by 4% and guided 20% below consensus – this is starting to sound a little recessionary!
It looks like another tough day ahead, hopefully we won't retest Jan 22 levels but, on the other hand, maybe we should just get it over with…
