The market had looked to open up rather high, following Asia and Europe - but sold off throughout the day. Then, almost like clockwork, the market rallied into the close, but still down on the day and below those resistance levels - which continue to be tested. The action in the market was interesting and the beige book didn't reflect a recovery, but rather (as we know) the contraction in the economy is slowing down, good news - but not a bottom yet.
I had an interesting conversation yesterday - he indicated that we are seeing some lighter volume and larger trading momentum activity, rather that sector driven investment type paper. The traditional institutional contingency orders are few and far between, and the activity seems to toss short-term deltas into the market. His concern is that momentum markets (up or down) need to (eventually) have some fundamental foundation for them to be justified in the long-term. I mentioned that the banks "seem" to be fundamentally sound (regardless if we criticize the accounting and Fed borrowing) - since by the "NEW" measure it is getting better. True enough he said, but the market is rally as revenue is contracting - that can only last so long. If revenue is contracting that is negative growth no matter how you slice it. I think that it could create more efficient business models to keep margins hire - but he is right - as a measure of consumer consumption it is showing contraction.
At the end of the conversation - it is one thing - regardless of unemployment, we need to see revenue stabilize and start to grow (broadly) before a recovery is measureable. Unemployment is a gauge we can determine by reason if we expect to see revenue contract or expand, for now we haven't seen a bottom yet (but I think it will happen this year - or I hope).
CEO of Blackrock was on CNBC this morning and he made a similar comment, we are NOT going to see the growth that we are accustom to going forward and that also means "fundamentally" slower growth. He also thinks, while 1000 SPX target for 2009 is still their target, we have come up too much too fast and a revisit to 800 is in the cards in the short-term. He expects a choppy move to 1000 and slow growth in 2010 and 2011. He included that inflation is a very big worry for them going forward.
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Yields Rising…
The auctions of government treasuries is not seeing the kind of buying that is needed to absorb the debt the government is generating, we are continuing to see bonds fall, sending the yields higher. The 10-year is approaching 4%, a level we had not seen since last October. The problem is there is a lot more debt to be sold and the market has been barely able to absorb it, as the Fed is printing money to buy the balance and make up for the short fall.
The U.S. will auction $11 billion in the 30-year paper today and the traders are keeping an eye on the buying and the yield.
Yesterday, Russia announced that it is diminishing it’s positions in U.S. and now Brazil is taking a similar position. A story to keep our eyes on.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_8g_DLCl4vs
Now even Nouriel Roubini (Economics professor that predicted the economic crisis) – says that dollar’s favor of a reserve currency will deteriorate. While it will not happen overnight, the momentum (and faith) is moving in that direction. Geithner tried to reassure the Chinese, but the reality of the debt, deficit, and printing of 100s of billions is a clear sign that it will take more than a pep talk from Geithner to bring back confidence.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aRMZbES7DNFc
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Retail Sales and Weekly Jobless
Retail sales up rising .5% (excluding autos) – better than expected (.2%), but a mixed number when we look at it in more detail. Growth in food and beverage, but down in department stores. While number may look on the surface better than expected, the analyst are saying that once looking into the numbers – it seems the necessity purchases remain strong, but extracurricular purchases are suffering. Good news they ARE spending, but in a very frugal manner. Auto sales may also look better, but those sales are skeptical because GM and Chrysler are selling at steep discounts to empty inventory and generate cash in a bankruptcy.
Weekly jobless claims down 24,000 – showing that it is slowing, but still not enough.
However, those that remain on unemployment hit a new record of 6.8 million. While we might be slowing in layoffs, the net number rising of those on unemployment clearly shows that we are not seeing any growth yet.
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Futures Pre-market
The futures are starting to come off after the retail and job numbers – it had initially jolted up, but then came down after the numbers were being reviewed. Expect a flat to negative opening.
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Support / Resistance
Seemed like we were going to break out yesterday morning, but selling pressure pushed us back down below those resistance levels. A good fight at these levels – pretty even.
INDU 8750 (Way up, way down, back to unchanged. I call the fight a draw!)
NDX 1500 (Again – same play up, down, back to unchanged.)
SPX 950 (Same here)
RUT 540-550 (This was a little weaker than the narrow based indices)
Keep an eye on this fight – these are key for a break out or a sell off. It could go either way – momentum or fundamental. Momentum has seemed to slow.
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Conclusion
The data today looks like we are getting to a bottom, but the growth doesn’t seem to be coming any time soon. We did see bonds begin to rally after the numbers, right after they had touched 4% - a safe haven play? Not enough action yet to make that call.
To conclude – here is a very interesting story:
What are two dudes doing with $134 billion in bonds in a brief case?
http://www.japantoday.com/category/crime/view/2-japanese-carrying-134-bil-worth-of-us-bonds-detained-in-italy
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