Traders, I love how CNBC JUST came to the conclusion "We are OFFICIALLY in a Bear Market!" - Ah thanks for the heads up on that one! Would of been nice if they would of told us that a few weeks ago. Of course the Kudlow Quotables keep coming. Yesterday, it didn't take CNBC's brilliant powers of observation to figure out we are in a Bear Market, the S&P snapping that 1275 level was pretty much the surrender flag waving.Today - (last day of the trading week) - is all about TWO pieces of data - the Job Numbers and ECB and raising rates!
For now – chew on this KUDlow Quotable from this morning: “I’ve seen 3 straight months of increased consumer spending, the economy is not that bad!”
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Oil - $145 and going higher?
How high can it go? Who knows - but the effects are trickling through the entire system. Whoever said that Trickle Down economics doesn't work, all they had to do was watch oil and it's trickling into every part of our economy to realize that it does work - unfortunately it works in reverse too!
The ECB raising rates will put more pressure on the dollar – so expect oil to go HIGHER (since it is priced in dollars.) The trickle affect will continue to put the squeeze on business across the board.
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Jobs Report – Economy loses 62,000 jobs!
The economist consensus is forecasting down 55,0000 - I thought was possibly closer to 100k. However, the BLS could pull some revision magic – so expect anything. Regardless they should be anything but positive. Many traders got in front of the number yesterday and unloaded positions prior to the release of information on top of a short week and light volume day. Many are saying the numbers are priced in today.While the unemployment increases – since we round – the rate is still at 5.5% - so I am sure you will hear Kudlow spin it into something like “Unemployment is FLAT, consumer Spending is Up, the economy is strong!” – Whatever – the perpetual smoke blower has his fans.
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ECB - will and should raise rates!
The US is at 2% on their primary rate - the Target Rate. The European Union is currently at 4% they just raised to 4.25%. The ECB did not cut rates over the last 6 months while inflation has been on the horizon and increasing. The US on the other hand cut rates down to 2% very quickly - primarily to keep money flowing to the banks because of the credit crisis. They have tossed concern about inflation into the wind. Their own CPI (post all the changes that keep it low) shows almost NO INFLATION - but the man on the street is living in the real world.
I consistently hear the talking heads talk about the DUAL mandate of the US Fed to service both the dollar (inflation) and the employment (borrowing money). However - you can't expect the FED with ONE TOOL (to raise and lower interest rates) to serve two groups (mandates) - it's obviously they are only serving one - the Banks and the credit lines.
I was reading the other day about an interview with Milton Friedman (economist) and the need for the use interest rates to keep inflation under control. He references the past high inflation eras and how rates went up to curb inflation pressure and bring strength back to the dollar. In the 70s, 80s, even 90s. Yes, the country went through difficult times and ever since we came off a standard (something I don’t think Milton agreed with but came to terms with and realized the POWER and NEED to control inflation with interest rates) – the FED got tough and raised rates which reduced inflation pressure. All economist (even ones that do not agree with a Fiat System) agree that inflation and interest rates do have a symbiotic relationship. Now Milton is rolling over in his grave – Inflation is going up! (over 4% via CPI, over 7% via per-1990 CPI) and our rates are going DOWN not up – we are at 2% - who do you really think wants to buy Treasuries at 2% with the CPI at 4%? The exact OPPOSITE of what Economics 101 teaches us on how to use interest rates to increase strength in the currency and reduce inflation pressure.The rest of the world has obviously passed Econ 101, Mexico, China, India, Europe – all seeing inflation have ALL raised rates! Even those that are suspect of inflation may have not raised rates, but they sure did NOT CUT THEM!
Why are we different? I think the answer is clear – the Fed has SEEN behind the curtain and realizes the credit crisis is bad. If the banks were not getting squeezed they would most certainly raise rates. I would argue that we would probably be in the 6-7% rates (like we were almost over a year ago), if it were not for the banking (lending) crisis.
I’ll concede that the lowered rates and special deal at the discount window has kept banks treading water and a huge injection of much needed cash, but at what cost? No doubt it has weaken the dollar, shaken the foundation of global faith in our currency (policy and economy), has pushed the commodity prices higher (since they are PRICED in our now weakened currency). Didn’t Bernanke take notes about Trickle Down Economics – it works both ways – EK!
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Nvidia getting the SMACK DOWN!
Nvidia, the leader in computer graphics chips is getting hammered in the pre-market. The company is just getting pounded with bad news: one of their chips is over-heating and causing problems in laptops. Price competition is heating up with their rival ATI. Commodity prices are crushing margins. And yes OIL PRICES are driving shipping prices higher. The story going into the second half of the year is not looking good for NVidia – which is too bad – they have some fantastic products! All those GTA, WOW, COD, and other 3 letter Game Acronym players need their juice. You know who you are. After reading a very interesting new business model used in Asia for online gaming – I think in months to come (after we get through these major bumps in the economy) we should see the likes of Nvida and others do very well. The article in the Economist this week has a very interesting article about this new gaming business model – that has taken Asia by storm. It’s brilliant and it also means more high-end game cards/chips (Nvidia) will be hitting the streets in the future.
The stock is getting hit very hard in the pre-market down $3.50 to $14.50. Is it a time to buy? Probably not yet – but it is getting cheap for the 2nd largest high-end graphic chip maker in the world. If you know about WOW and the MASSIVE growth in that MMORPG market – (billions) – which I suspect will past the movie industry in a couple of years. Companies like Nvidia play a very big roll. For now – stay on the sideline but get your alerts on. You know that all those WOW, COD, and GTA players have it on!
Hey J, make sure not to get caught in the X-Roads without your Buff!
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Futures Pre-Market
The futures were down pretty big with the ECB rate increase, but then it started rallying after the job numbers (worse than expected) came out – maybe it WAS priced in. Who knows – but we are rallying and the spread between the cash is starting to widen – we could get a good pop to the upside if the spread remains.
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Support /Resistance
Well it’s “official” if you are a CNBCer – we are in a Bear Market. Supports got blown out yesterday as the light volume weak, expected ECB hike (weaker US dollar) and lower job numbers were to be expect today. They were right – maybe overly so (according to the futures in the pre-market).
INDU – 11250 (We broke through 11250 – maybe if we can close above that going into the holiday weekend we could see some strength in the short-term return.)
NDX – 1800 (This index is still pretty high up – after it’s huge 2nd qtr run – so it has room to fall. Yesterday had a huge smack down – but we are getting some upside in the opening. Where she stops – nobody knows!)
SPX – 1275 (We are below that much needed support area – we need to close above it to give those dollar cost averaging bulls any hope going into the second half of the year.)
RUT – 650 (We are still above the March lows – so we have more room to fall before CNBC officially calls the RUT a Bear too! Whatever – let’s just see if it can get back above 675 going into the weekend!)
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Conclusion!
I got some flak for the Maxine Waters reference yesterday. It's funny that my Republican friends have no problems with me taking pot shots at Kudlow, Bush, or the other party members - I even get the cheered responses from my Democrat friends when I make that jab to the "right" of the aisle. But wait - God forbid I make a jab at Maxine or the Democrats! Look - you all SHOULD know my stance - I dislike ALL forums of Socialism and Nationalism - it doesn't matter WHOS mouth it comes from. I am NOT a Republican or Democrat. Even Maxine Waters tried to stop that word from coming out of her mouth - she CHOKED ON IT. She is a smart women - she is grasping at Socialism too, but knows in her heart that is NOT the answer.
When times are good NO ONE wants Socialism - they all want the government out of their business. But when times are tough - they all go running to mommy and Socialism all of a sudden doesn't sound like a bad idea. WAIT - we are a Democracy - our founding fathers fought AGAINST government control and collectivism type tyranny. Stop and read the Constitution - we are a FREE DEMOCRATIC COUNTRY - for better or worse. We don't want or need the NEW NEW DEAL or anything like the National Socialist Party from the 30s over in that country somewhere in Europe. I know things are tough and we would love to blame someone, but let’s focus on the now and not try to point fingers - but rather take some responsibility and accountability and move on.
This weekend when we are around the BBQ with friends and family, watching the fireworks, and viewing our Flag - take the time to REALLY think about what we are celebrating (it's not Beer, BBQ, Baseball, and Apple Pie) it's the FREEDOM to enjoy those items and those RIGHTS that insure those FREEDOMS!
Don't let the 4th of July become a holiday without meaning, don't let this country turn into everything that our founding fathers fought for be destroied. It is the FREEDOM we celebrate on this important holiday that means America!
Regardless if you are Democrat, Republican, Green, Independent, etc....keep your party members in check! They all have important contributions to this country - but those contributions should NOT include SOCIALISM or NATIONALISM, we have a very tough road ahead! We don't want Hugo Chaves President - do we?
When times are good NO ONE wants Socialism - they all want the government out of their business. But when times are tough - they all go running to mommy and Socialism all of a sudden doesn't sound like a bad idea. WAIT - we are a Democracy - our founding fathers fought AGAINST government control and collectivism type tyranny. Stop and read the Constitution - we are a FREE DEMOCRATIC COUNTRY - for better or worse. We don't want or need the NEW NEW DEAL or anything like the National Socialist Party from the 30s over in that country somewhere in Europe. I know things are tough and we would love to blame someone, but let’s focus on the now and not try to point fingers - but rather take some responsibility and accountability and move on.
This weekend when we are around the BBQ with friends and family, watching the fireworks, and viewing our Flag - take the time to REALLY think about what we are celebrating (it's not Beer, BBQ, Baseball, and Apple Pie) it's the FREEDOM to enjoy those items and those RIGHTS that insure those FREEDOMS!
Don't let the 4th of July become a holiday without meaning, don't let this country turn into everything that our founding fathers fought for be destroied. It is the FREEDOM we celebrate on this important holiday that means America!
Regardless if you are Democrat, Republican, Green, Independent, etc....keep your party members in check! They all have important contributions to this country - but those contributions should NOT include SOCIALISM or NATIONALISM, we have a very tough road ahead! We don't want Hugo Chaves President - do we?
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