Expiration was mixed – like the previous week we flirted with resistance and last week we have flirted with support. We are seeing an big increase in companies selling their stocks to raise money and Bloomberg reported we are also seeing one of the largest insiders selling reports in some time http://www.bloomberg.com/apps/news?pid=20601087&sid=aflROe0Pe0QM . It is as if people are become impatient to see whether these green shoots will turn into flowers. As I mentioned, you can only talk up the green shoot talk for so long before results needs to be obtained. Obama has been instrumental in bringing confidence and optimism back to the market, but as NPR reported this morning he is the Chief Marketing Officer. He is selling a brand and has done a very good job of it from the campaign and right on through the economic stimulus and crisis. But as every Pitchman (including Billy Mays) will tell you, you can sell the product, but the product has to work.
The concern about inflation and seeing a recovery is beginning to trump the “finding the bottom” and “green shoot” talk. We need to see some results or a bottom soon. The perception will determine whether this support area holds or not.
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Volatility in the currency market.
We have seen huge swings in the currency markets and all of it surrounds the talk about the stability of the dollar. From China’s request for a new currency to Russia buying IMF debt, rather than U.S. – The volatility has been significant and seeing a few cent move in a day, rather than the traditional fraction of cent is sending jitters across the market. Central banks are scrambling to figure out a solution to maintain some principal stability and at the same time dealing with their U.S. dollar reserve holdings. One such problem is the very low yield on the U.S. dollar, which is not making up the offset in the U.S. dollar’s weakness. Several foreign central banks are also handcuffed into long-dated bonds – making it even more difficult to tap capital without penalties and larger dollar risk volatility exposure.
But there is a massive split between analyst forecasts. Some say that the dollar will strengthen and a flight to safety (regardless of interest return being flat to negative) will buoy the dollar. That has been the traditional line that most economist had believed in and there is still a serious camp in “Safe Haven” theory. However, the big split in views of those that believe the dollar is facing serious inflation risk and global weakness have several valid facts to back up their theory, from China and Russia moving money into non U.S. dollar backed securities and asking for a new reserve, commodity prices and volatility, and most importantly the massive amount of debt the U.S. is piling on (not to mention the off-balance sheet accounting at the Fed which is believed to be 9 trillion).
No doubt the dollar is at a critical juncture and massive fork in the road. We have moved beyond the math determination in dollar viability and into a new realm of faith. Sure there are those that will point to the math, but I bring up faith as a key component. Our currency, being a FIAT currency (it is backed by nothing other than the “good FAITH” of the U.S. government), means that everyone has to “BELIEVE” that it is worth something. If a country like China stops believing in it and moves out of the dollar and refuses to take dollars in trade (not saying that it will happen) – we could see a fast drop and possible collapse of the dollar. (Like Iceland last year). This is a very low probability, but a probability none the less.
At some point foreign central banks (in fact everyone) has to have “FAITH” in our government and its ability to reduce the deficit and pay down debt. Obviously printing money will not solve that problem and that is why foreign nations are crying FOUL and want the U.S. to get a solid grasp of its financials.
This is a very delicate time and as these two camps, one of FAITH “Safe Haven” and the other that is losing faith become more at odds – we should expect bigger swings in the currency markets and that means more volatility. And more volatility means that regardless which side is right – some might leave the party to avoid volatility. If enough of those smaller emerging markets look for quite places to avoid the swings that too means a loss of strength and faith in the dollar.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLaIb.6J8xFc
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Apple and Jobs
Would Apple be where it is today without Steve Jobs, I would say not. He started the company with the “Woz” in a garage, built it up, and then was ousted from his own company. As the typical suits took over Apple lost momentum and started to fall. When Jobs came back, he brought back his vision and drive. iMac, iPhone, iTunes, iPod, and a whole new view and technology. He is certainly an American pioneer that has beat to his own drum and brought Apple back from the dust.
But he has been facing serious ailments, from cancer (which he beat) to recently being ill which lead to a rumor that he had a liver transplant. Apple in his absence continued to rally higher and up-sells of the iPhone, but since he has left it has really been living off its past product line’s next generations. The questions are numerous, is he coming back, is he ok, will he be the CEO, how long, and most importantly when he does eventually step down – who will be that inventive driving force that will roll out the new line of technologies?
If the past is any indication of the future, if a blue stuffy suit is to take over (like it had), we can expect to see Apple trade back down into the teens and nothing new on the horizon for decades. We can only hope that Apple has learned from its past and that another Jobs Jr. is in the wings being shown the way by one of world’s greatest technology wizards. May Steve Jobs have many long and prosperous days ahead.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aRYCnEpXRww0
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Futures Pre-market
Europe was down and it seems that it is also dragging down the futures in the pre-market. We are still at those support levels, but there seems to be some selling pressure. Expect a negative opening.
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Support / Resistance
We have been flirting at these levels and it seems that we might be visiting again this morning – do we hold or break?
INDU 8500 / 8750 (Futures are showing an opening just below the support.)
NDX 1450 / 1500 (Looks like we might opening right at 1450.)
SPX 900 / 950 (A 905 opening, do we hold?)
RUT 500 / 540 (At 505 based on the futures in the pre-market).
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Gold 900 (Gold has come off after making its run – expect to see volatility with the currencies.)
Silver 14 (We saw a pull back from the 15 level and are looking just below 14.)
Oil 65+ (We were up in the low 70s, but this morning’s action is showing Oil breaking 70 and trading in the 67-68 range.)
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Conclusion
People are very tired of hearing “green shoots”, it is almost mind numbing. It was catchy when someone first said it a couple of months ago, but I suspect that it is the most used word to describe the economic condition on any major network. Buzz words used properly, like “green shoots”, create hope and optimism. Marketing people KNOW what works and what doesn’t. The word “green shoots” implies hope and growth, it represents Spring and new life or new beginning. It is synonymous with Obama and his administration, out with the old and in with the new. However, it was Summer Solstice – the equinox has passed and it is summer. The flowers should be out, but they are not. Just like any farmer, the greet shoot talk is great after the snow has melted and the plants are breaking up through the soil, but they need to harvest those rewards. Once Summer is upon us, those plants better not be green shoots any longer, otherwise by fall there will be nothing to harvest. Investors want to see results, the economy wants to see results, and seeing companies and insiders selling their stocks is telling me that they think those green shoots might not be sprouting into flowers by fall.
Watch the dollar!
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