Friday, June 19, 2009

6/19/09 (Millionaries Missing? Global recovery? IPhone Craze!)

Traders,

A basing area? We got down to those supports and have been basing as if waiting for some vital information that will steer the market up or down. Obama’s financial reform fell slightly flat and Geithner wasn’t convincing either way in his testimony. It’s a big task and still too many questions. The recent government data – from unemployment, inflation, and housing starts continue to tell the same story – we are not at a bottom yet, but there looks to be green shoots. But even though the numbers are not looking worst and are slowing in decline – the fact is they are still declining. It was like the housing starts – they looked great, but then you turn the page and foreclosures were up again. Investors (and the market) optimism of green shoots needs to pay off soon and those green shoots need to turn into flowers soon. We can only have “not that bad news” for so long and continue to hope that it will get better.



The talk now is the “double dip” recession, that talk is gaining a little ground because on the low end of the curve (the consumer) is not improving. No new jobs, jobless claims continue, no credit availability, equity lines in their home have decline, inflation (gas and food) are up, and mortgages rates have increased 100bps in a month. Unless we can see actual improvement at the consumer end of the curve – optimism, hope, and confidence doesn’t pay the bills. Well that’s the meat of the argument for the double dip. The math for the double dip is simple – look at revenues at companies (they are continuing to show lower numbers and guide lower). Smart companies will plan for lower revenue and look at cutting costs to juice the margins to remain profitable. But you can only cut so far. The big talk now is taxes, which are a big cost to any company.


If taxes are raised on the wealthy and companies to make up for the government spending and debt, we will hear more people like Paul Allen who has threaten to move Microsoft overseas. In some cases were are already seeing it. This is a great article on how raising taxes on the rich may not pay off and in fact in this case raising taxes actually yield LOWER revenue for the state.
http://online.wsj.com/article/SB124329282377252471.html (Millionaires go missing!)

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Global economic recovery


News out of Europe have a few leaders talking about “green shoots” and seeing in some of the data some numbers improving. Unfortunately not the consumer – which is what everyone is forgetting about. However, an interesting point is an increase in manufacturing – which is great news. But let’s look at it in break down the details. First, when the recession hit manufacturing slowed down as inventories became backlogged. In order to clear inventories, which takes time, means flushing them out at huge discounts. We saw, what seemed, as a deflation environment. For a short time it was – goods were sold at step discount just to move them and clear out massive backlogs. As the inventories diminished the wheels of manufacturing started turning again. Now doubt that it has increased, but should we get excited that it is increasing even though the measure is very small. I say yes and no. Yes – because it means that they are pushing out product again. No – because the increase is very small and while measurable it shows that goods are moving at a snail’s pace. It is a good first sign – but we need to see it pick up.



Second, where IS the manufacturing picking up? That is another interesting question. Reports show a pickup in the BRIC nations and other manufacturing nations. The U.S. is really not showing anything to get excited about on the domestic front, but the international companies are seeing their foreign sites picking up. The question is where are the goods and services being deployed.


China had seen a slow down as well, but they also don’t have the national or consumer debt like this country. Their stimulus went to the bottom line as only a small percentage of consumers in that nation have access to credit and thus little debt. They are seeing a quick bounce – the question is how much of their domestic manufacturing is serving them domestically vs. foreign trade. The trade balance is widening, but we are also seeing them both decline.


I think it is not wise to look at a global recovery, but rather on a nation by nation recovery. Investors are also going to be taking a closer look at investing overseas as new ETFs, funds, and other products are giving them better access to foreign investments. That means competition in products – more products with a finite amount of dollars means diversification. It also means higher volatility as we see money chase the yield. We see that traditionally in the bonds vs. stocks as money pulls out of safe heavens into equities and back in again. As more foreign products are available we could see funds chase products overseas.


China is in a incredible ability to recover – little to no consumer debt, little national debt, positive trade balance (trade surplus), manufacturing, growth, and commodities. Compare that to the U.S., massive consumer debt, massive national debt, negative trade balance, shrinking manufacturing, and a reliance on foreign commodities. Jimmy Rogers is right – it will be only a matter of time before we see more investors chase better opportunities off-shore.

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Apple – Jobs who?


Steve Jobs has been out because of an illness, but that hasn’t stopped Apple from rocketing higher (up 50% from its lows). People are waiting in line again this morning, not for a new product – but for an updated Iphone. It looks the same, works, the same, is really the same – except it has a few new features. The power of Apple is amazing – marketing, design, etc. It certainly has it’s crazy fan boys that will wait in line and those in line probably already have Iphone 1, Iphone 3g, and now they are buying the new Iphone. It’s like a drug. Smart investors are riding the momentum of Apple’s ability to resell the same product 3 times in a row with just new features. The price difference is incredible – people are paying over $200 more for a couple of new features. So expect a pop in the stock today.

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Futures Pre-market


We are seeing a good pop in the futures – part from the Iphone hype (which we are seeing the NDX) and part from the positive spin out of Europe about Global economic growth. Expect a higher opening.

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Support / Resistance


INDU 8500 / 8750 (It looks like 8500 held as support are we to head back to 8750?)

NDX 1450 / 1500 (Again a hold at the 1450 level – looking about 15 points higher at the opening.)

SPX 900 / 950 (SPX also held.)

RUT 500 / 540 (Another hold.)

Watch the close – it is expiration this week. Volume also has been light after we got to the support.

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Conclusion


Currency markets and commodities have been quite this week, along with the market after it reached support areas. Today is “triple witching” as futures and options expire collectively. We may not see a big rally or sell off as hedging into expiration could create some pin risk on issues. Watch the action into the close and if this rally off support has any legs.


Watch you expiration risk and stock after the close. Get those exercise / do not exercise notices out – we might see some aftermarket money on the table.

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