Treasuries
This is beginning to sound redundant, but all the charts I've posted this evening show this same phenomenon. The futures open much lower than Friday's close, but then go flat. Weird, huh?
but then goes flat! The daily chart, however, remains constrained within a very tight range.
This is an interesting chart because treasuries opened higher, then immediately started to fall, following last Friday's price action downward. We must keep in mind that this is a holiday weekend, and that trading will have reduced volume and constrained schedules. At the time of this writing, prices have found support at Friday's low, but support is still holding -- for now!
My charts don't go back far enough to know how long ago natural gas reached prices this low. However, in evening trading, natural gas has declined to price lows that we haven't seen in recent history within the past few years. However, my March '09 contract charts show that the price of natural gas hasn't been this low since it began trading in April '04, so this is a historically-low price level.
From Bloomberg:
Group of Seven finance chiefs vowed to tackle a “severe” economic downturn that will persist for most of 2009 without spelling out new steps to do so.
The Group of Seven leading developed economies said Saturday they are committed to avoiding protectionist measures, and will also try to ensure that the actions they take to combat the recession don't harm other economies.In a statement released at the end of their two-day meeting here, finance ministers and central bankers from the G-7 also welcomed China's commitment to move to a more flexible exchange rate, and said that should lead to a further appreciation of the yuan.
"The G7 commit to take any further action that may prove necessary to reestablish full confidence in the global financial system," the statement said. "We will continue to work together and to cooperate to avoid undesirable spillover and distortions."
From FT.com:
Finance ministers and central bankers from the Group of Seven industrial democracies meeting in Rome on Saturday discussed how to tackle the worst global recession in generations without damaging free trade and hurting each other’s economies.
A communique at the end of the two-day meeting hosted by Italy was expected to carry a pledge to avoid protectionism and “avoid undesirable spillovers and distortions”, according to a draft obtained by Reuters news agency.
Banks in Florida, Illinois, Nebraska and Oregon were shut by regulators, boosting the toll of failed institutions to 13, as a worsening economy and slumping housing market pushes home foreclosures to records.
From World Net Daily:
As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.
The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.
"The Congressional Budget Office estimated the fiscal year 2009 budget deficit as being $1.2 trillion on a cash basis and that was before taking into consideration the full costs of the war in Iraq and Afghanistan, before the cost of the Obama nearly $800 billion economic stimulus plan, or the cost of the second $350 billion in TARP funds, as well as all current bailouts being contemplated by the U.S. Treasury and Federal Reserve," he said.
What a rout in treasury futures today. Interest rates have risen the most today since the beginning of the year!
From Marketwatch today:
As Wall Street tracks Washington's moves to help the beleaguered banking sector and pass more economic stimulus, nearly 400 of the S&P's 500 companies have weighed in and reported a collective loss -- even excluding financials.A sixth quarter of negative growth ties the prior record set when Harry Truman was president, and ran from the first quarter of 1951 to the second quarter of 1952."And next quarter we're expected a new record of seven quarters of negative growth," Silverblatt said.As of the close of business Thursday, Silverblatt calculates S&P earnings-per-share, on a reported basis, at a loss of $10.44 for the quarter. If financials were taken out of the equation, that EPS deficit would drop to $2.35.
With a holiday on Monday, many traders are reluctant to be short the market over the weekend, especially with the G7 meeting.
Also from FT.com:
Eurozone growth contracted at its fastest ever rate at the end of last year, with an unexpectedly-bad German performance deepening the recession more than had been feared.
Gross domestic product in the 16-country region slumped by 1.5 per cent in the final quarter of last year – the same pace of contraction as in the UK but faster than the 1 per cent fall reported in the US.
The turnaround in fortunes is particularly dramatic because economic instability had become rare in continental Europe. Until last year the eurozone had never reported a quarterly contraction in GDP growth.
From the Financial Times:
Consumers, economists and corporate executives are feeling increasingly gloomy about the state of the US economy, new surveys revealed.
According to the Reuters/University of Michigan index released on Friday, US consumer sentiment fell by 5 percentage points, to 56.2 in February from 61.2 last month. The results were worse than forecasters expected and left it just short of last November’s record low reading of 55.3.
The grim outlook was reinforced on Friday by economists at the Federal Reserve Bank of Philadelphia. Its survey of 43 forecasters predicted that the US economy would contract by 5.2 per cent in the first quarter of this year, reflecting a downward revision from three months ago when they expected a contraction of 1.1 per cent.
Imagine that! A contraction in GDP of more than 5%!
Read the entire article here:
I'm surprised that the mass media, and especially the AP, would say this:
No, the big stimulus plan won't "save or create 3.5 million jobs," as the president and congressional Democrats claim -- at least not this year.
The economy will remain feeble through 2009, analysts warn, and businesses will keep shedding jobs, though not as many as they would have without the $789 billion boost.
What it won't do is quickly snap the country out of the painful recession, now in its second year.
But even with the stimulus, many economists predict a net loss of 2 million, 3 million or even more jobs this year. The recession already had cost 3.6 million jobs through January. The unemployment rate, now at 7.6 percent, the highest in more than 16 years, will probably hit at least 9 percent by next year.
Mark Zandi, chief economist at Moody's Economy.com., estimates the bill will create just more than 2 million jobs by the end of 2010. The problem is, the recession will probably wipe out many more jobs than that. Zandi's prediction: 6.5 million jobs will disappear.
Here is a link to a fantastic graphical display of the content of the U.S. stimulus spending bill from the Washington Post. Very well done:
Taking Apart the Stimulus Package
Stocks have been unable to sustain their gains today, despite a nice attempt at a rally during President Obama's speech earlier this morning. Still, I don't see and strong momentum developing in either direction at the moment.
From McClatchy Newspapers:
The compromise economic stimulus plan agreed to by negotiators from the House of Representatives and the Senate is short on incentives to get consumers spending again and long on social goals that won't stimulate economic activity, according to a range of respected economists."I think (doing) nothing would have been better," said Ed Yardeni, an investment analyst who's usually an optimist, in an interview with McClatchy. He argued that the plan fails to provide the right incentives to spur spending.
"It's unfocused. That is my problem. It is a lot of money for a lot of nickel-and- dime programs . . . . Most of this plan is really, I think, aimed at stabilizing the situation and helping people get through the recession, rather than getting us out of the recession.
Final passage of the stimulus bill is expected today. By now, it almost seems passe to say that the bill is complete and certain to pass.
This daily chart shows that silver has been one of the best trades in the past few months!
It's hard to believe this tick chart is from the same day as the "straight down" one I posted less than one hour ago! I also expect resistance at yesterday's closing price level.
Here are a few gems from the interview:
Mr. Geithner, has been /failing/ for 15 years; he has caused this problem. Mr. Geithner has been head of the New York Fed for several years and that's the office that was supposed to supervise Wall Street and the financial system. He came up with the TARP and all these absurd bailouts. Mr. Geithner has never known what he is doing and everybody will discover that, including Mr. Obama.
The idea that you can fix a period of excess borrowing and excess consumption by more borrowing and more consumption to me is just ludicrous.
We should do what the U.S. told Japan to do in the nineties. You let companies go bankrupt, you clean out the system, you wipe out everybody that is insolvent. Mr. Greenspan went to Japan and said, “you are doing it wrong”, you have got to let people go bankrupt, you have got to clean out the system. The Japanese did not do it. They continued to prop up zombie banks and zombie companies and they still talk about the lost decade. Geithner said the other day that the Japanese did not spend enough money; all they did was to spend money. I almost fell out of my chair when I heard that. America is making exactly the same mistakes, and the politicians are making it worse, not better. Do you know why they are making it worse? Because they want to support their friends on Wall Street and the bankers so that they all can keep their Maseratis.
Bad bank? They are not letting anyone fail. But the idea that the US Government is coming in and buying these toxic assets. Who is going to value these assets, either the banks are and they are going to set it to high, the taxpayers atre going to lose out…it's not going to work, it has never worked.
If we keep putting in more and more government money, we will have a depression. This has never worked. Look at countries that took their pain. It was horrible for 1 or 2 years. But they cleaned the system and came out with sound economies. Korea, Mexico, Russia took the pain but cleaned the system and became sound economies, grew fast in the next few years.
This picture is worth a thousand words. Click on it to enlarge the graphic. This shows stocks beginning about 2:00 pm EST today. Straight down! This chart represents only about 1/2 of today's stock market losses. A similar chart for the first few hours of the day, and a brief middle-of-the-day rally, were depicted in one of my previous charts.
Gold -- breached $950/oz. today
Treasuries -- brief dip as investors demanded more interest, followed by fear-based buying
Thanks Congress! Thanks, President Obama. This is what the financial markets think of your "stimulus" spending bill! This just goes to prove once again the adage that "You can't fool all the people all the time!" The Dow's November lows are now only a few hundred points away.World stock markets fell Thursday amid pessimism about the Obama administration's plans to fix the U.S. banking system and restore the overall health of the world's largest economy. European stocks were also undermined by a raft of disappointing earnings...
Sentiment in Europe, already depressed by further losses in Asia earlier, was hit by the news that a number of companies across the continent reported worse than expected earnings and predicted further difficulties for the months ahead.
New unemployment claims last week were slightly better than expected, but that didn't help the mood either. Wow! What gives?
Despite that January retail sales in the United States were not as bad as expected, traders doubt the accuracy and completeness of the data. Stocks are selling off instead. I expected a rally given that good news is so rare, but when the data is in doubt, this only adds to the uncertainty.
"There isn't enough money in government to solve this." -- Orin Kramer, Chairman, New Jersey State Investment Council, speaking on CNBC this morning.
Finally, someone in government admits what the rest of us seem to know intuitively!
From the Financial Times:
China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday.
China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries.
Despite that the Chinese feel trapped into buying more treasuries, they aren't happy about it. They used very strong and stern language to describe their disgust: "We know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”
The good news is that the U.S. trade gap has declined to a six-year low. The bad news is that it declined because the economy is in the doldrums, and imports have dropped. Still, stocks today are taking it as sufficient reason to rally modestly!
From Bloomberg:
Pacific Investment Management Co., which runs the world’s biggest bond fund, said the global economy faces a “second wave” of turmoil unless governments adopt larger spending plans.“The economic setback is still in its early stages,” Koyo Ozeki, head of Asia-Pacific credit research at Pimco’s Tokyo office, wrote in a report published today on the company’s web site. “Any further decline in housing prices could accelerate the downturn, intensifying the pernicious feedback loop and possibly leading to a second wave in the financial crisis in the next six to 12 months.”
From the Daily Telegraph (U.K.):
A secret 17-page paper discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday, also warned that government attempts to buy up or underwrite such assets could plunge the European Union into a deeper crisis.National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.
“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned. “
"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”
With the Fed artificially driving interest rates lower by talking down long term bonds, and stocks in the tank, investors are fleeing to the one safe place they know today -- gold!
From Bloomberg today:
"...No one from either party is objecting to the health provisions slipped in without discussion...Senators should read these provisions and vote against them because they are dangerous to your health. (Page numbers refer to H.R. 1 EH, pdf version).
The bill’s health rules will affect “every individual in the United States” (445, 454, 479).
One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book... According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far.
Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541)
Daschle says health-care reform “will not be pain free.” Seniors should be more accepting of the conditions that come with age instead of treating them. That means the elderly will bear the brunt.
The Federal Council is modeled after a U.K. board discussed in Daschle’s book. This board approves or rejects treatments using a formula that divides the cost of the treatment by the number of years the patient is likely to benefit. Treatments for younger patients are more often approved than treatments for diseases that affect the elderly, such as osteoporosis.
Today should a great day for trading. Treasury Secretary Geithner will be unveiling his plan for financial system rescues, Ben Bernanke will be testifying before Congress, and the U.S. government will have a treasury auction at 1:00 pm EST. It should be a very exciting trading day!
President Barack Obama and congressional Democrats... have dug up the dead economist's convenient justification for deficit spending in defense of their bloated stimulus legislation. But none ask the most important question: Was Keynes right?
According to Nobel economist Friedrich Hayek, a contemporary of Keynes and perhaps his greatest critic, Keynes "was guided by one central idea . . . that general employment was always positively correlated with the aggregate demand for consumer goods." Keynes argued that government should intervene in the economy to maintain aggregate demand and full employment, with the goal of smoothing out business cycles. During recessions, he asserted, government should borrow money and spend it.
Classical economists up to that time had emphasized a balanced budget and government restraint as the primary goals of fiscal policy. The simplistic notion that "aggregate demand" drove investment and employment threw all of that out the window, but it had one particular convenience for policy makers...A father of public choice economics, Nobel laureate James Buchanan, argues that the great flaw in Keynesianism is that it ignores the obvious, self-interested incentives of government actors implementing fiscal policy and creates intellectual cover for what would otherwise be viewed as self-serving and irresponsible behavior by politicians. It is also very difficult to turn off the spigot in better economic times, and Keynes blithely ignored the long-term effects of financing an expanded deficit.
It's clear why Keynes's popularity endures in Congress. Intellectual cover for a spending spree will always be appreciated there. But it's harder to see any justification for the perverse form of fiscal child abuse that heaps massive debts on future generations.
Three Ways to Pay -- All Destructive! (headline added by me)
What everyone should agree on is that the money has to come from somewhere, either through higher taxes, borrowing or printing.
If the government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. If the government raises taxes to pay for the stimulus, it will, in effect, be robbing Peter to pay Paul. If the government prints the money, it will increase inflation, which will decrease the value of the dollar. That would, in effect, rob Paul to pay Paul back with devalued currency.
Taking money out of the private economy -- either through taxes or inflation -- and spending it in a way that doesn't offset the loss of money with real economic gains is worse than doing nothing... The idea... is that at some point the burden of government spending exceeds the private economy's ability to carry it.
Hayek, who famously debated Keynes in a series of articles after the release of "General Theory," gave what I believe to be the most devastating critique of government action to stimulate "aggregate demand." Hayek viewed the boom and bust of the business cycle as primarily a monetary phenomenon created by governments' artificial inflation of money and credit.
Free Markets are Free People Acting on Their Own Interests (again, mine)
Sound money policy, conversely, allowed the disparate knowledge of millions of economic actors to be conveyed through the price system, rationally allocating capital and labor through relative prices. The problem with government attempts to manipulate the economy through fiscal policy -- spending that takes resources away from those who are productive and redistributes it to politically favored interests -- is that it is audacious. It assumes that government knows better how to spend and invest than individuals acting in their families' best interest...
The charade of the current stimulus package, chockablock with earmarks to favored pet constituencies and virtually devoid of national policy considerations, is the logical consequence of Keynesianism in action. It is about politics and power, not sound economics, and I believe that the American people will reject it.
Stocks have sold off this evening, now that the U.S. Senate has passed a stimulus/spending bill. Now, the Senate and House must find a compromise in conference, which could be a difficult and arduous process. Passage is still not an absolute certainty.
Most of the failures are likely to occur at smaller banks with less than $2 billion in assets as their commercial customers default, said Gerard Cassidy, an analyst at RBC, today. Somehow, I wonder if only small banks will fail. Is this because the big ones are "too big to fail"?
From the Washington Times:
/IMF head/ Dominique Strauss-Kahn said the Fund needed an urgent cash infusion if it was to continue bailing out troubled economies in the future. Mr Strauss-Kahn also indicated that the world's advanced economies were now tipping from recession into full-blown depression, cementing fears about the scale of the economic slump in rich nations.
The IMF head made the comments in Kuala Lumpur in Malaysia over the weekend...
Stocks are barely holding above yesterday's close today. The new job claims were better than expected, but are highly suspect. It's ugly out there! Trading is awful!
I am closely watching the treasury markets this week, beginning with the sales auctions tomorrow (Tuesday). The amount of U.S. debt borrowing is growing faster than a baby blue whale! If treasury sales aren't well bid, the ripple effect will be colossal! Congress and the officials at Treasury, the Fed, and the FDIC, are making huge assumptions that the demand will permanently remain strong for U.S government debt. If demand falters, it won't be a ripple -- it will be a tidal wave! Treasuries should see strong volatility this week, regardless of what happens!
Fascinating and mind-boggling story in Bloomberg today. Here are small excerpts:
The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages...Only the stimulus package to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates approved in 2008 have been voted on by lawmakers. The remaining $8 trillion in commitments are lending programs and guarantees, almost all under the authority of the Fed and the FDIC. The recipients’ names have not been disclosed.
“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”
The pledges, amounting to almost two-thirds of the value of everything produced in the U.S. last year, are intended to rescue the financial system after the credit markets seized up about 18 months ago. The promises are composed of about $1 trillion in stimulus packages, around $3 trillion in lending and spending and $5.7 trillion in agreements to provide aid.
The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.
Stock futures have rallied somewhat, moving back to hover around the flat line, in anticipation of a Senate vote and more news from Treasury Secretary Geithner regarding the latest rescue package for the financial system.
From the Washington Times:
Here is the full story.From crisis to catastrophe. Off a cliff. Dark, darker, darkest. Mortal danger of absolute collapse. Armageddon.
President Obama and top Democrats on Capitol Hill are deploying these and other stark predictions of doom and gloom to push through their economic-stimulus package. In terms not heard in Washington since the late 1970s under President Jimmy Carter's watch, the new president has sought to terrify Americans into supporting the $800 billion-plus bailout bill...
"Mr. Hope has to be careful not to become Dr. Doom," said Frank Luntz, a political consultant and author of the book "Words That Work: It's Not What You Say, It's What People Hear."
Here is the full story.Some aspects of the plan, to be announced by Geithner tomorrow in Washington, have been settled. They include a new round of injections of taxpayer funds into banks, targeted at firms identified by regulators as most in need of new capital, people briefed on the matter said. A Federal Reserve program designed to spur consumer and small-business loans will be expanded, possibly to include real-estate assets, they said.
Still outstanding is the issue Geithner’s predecessor failed to address: the illiquid assets that have caused the credit freeze. Officials continue to consider a so-called bad bank to buy them, perhaps in cooperation with private investors, such as hedge funds and private equity. It’s unclear how big a role there’ll be for federal guarantees of securities that remain on banks’ balance sheets.
From Bloomberg Sunday evening:
Find the complete story here.Federal Reserve officials have failed to resolve an internal debate over whether to purchase long-term Treasuries, even as rising yields on the securities threaten to undermine the central bank’s objective of cutting borrowing costs for consumers and businesses.
Policy makers are instead focusing on a program to purchase $200 billion in consumer and small-business loans and on a plan to buy $600 billion in home-finance debt, according to people familiar with the deliberations.
Dow futures have lost about 1/2 of their Friday gains in Sunday evening trading.
Bloomberg is reporting this weekend that the IMF has indicated that the world's most advanced economies are now in a depression. Now that's ugly!
Here is the story.
I have been writing about analyst earnings forecasts for some time. Earnings forecasts just keep dropping...
I commented on how bad earnings were last quarter. The web site shows earnings were a negative $3.14 a share, the first time they have ever been negative for a quarter. Ever! That was with 65% of companies reporting. He commented that it was worse than that. They don't have it up yet, but with 78% of companies reporting, losses are now a staggering -$8.56 a share. And it could get worse. The write-offs this quarter are just huge.
So, how does that affect total earnings for 2008? The table above shows analyst projections from March of 2007 through today. Notice how they kept falling over time. They are now down 70% from what was expected two years ago. Earnings for 2008 are a paltry $29.57 and dropping. The S&P 500 closed at 868.60. That makes the P/E (price to earnings) ratio 29.4. (I use a decimal to show I have a sense of humor.)
So, what are they projecting for 2009? Let's take a look. Notice that they too have been falling over time.
If the S&P 500 were to close where it is today, and using the estimates for the first two quarters of 2009, the P/E ratio would be 36.4 on July 1.But what if earnings merely fall to where they were in the last recession, or about 55-60% of where the projections are today? That would drop the 12-month trailing earnings for the four quarters ending June 30 to $15.90 and result in a nose-bleed P/E of 54.7 by the middle of the year.
If earnings don't come in dramatically better for the first quarter as opposed to last quarter, we could be setting up for a nasty summer bear market. Even in the bear market of 2001-2, the P/E did not get above 47. Which, by the way, at a 47 multiple would correspond to a range for the S&P of either 1111 if the earnings come in as projected or 731 if they come in at the lower range.
I see nothing on the horizon which suggests the economy is going to get manifestly stronger in the next two quarters. The real risk is that earnings come in weak for both quarters and investors simply despair this summer, throwing in the towel and bringing about a vicious bear market. I would seriously consider hedging any long positions you have before earnings season this next April. If they come in stronger, then we will see.
The above is only an excerpt of the entire newsletter. Italics were added by me to emphasize important points. It is all fascinating, and worth reading once each week.
Click here for an online copy of this edition of the newsletter.
Fellow traders and the news media have unitedly confirmed that Friday's rally was a short-covering rally, not a rally supported by strong buying activity. Financials, retail, and housing stocks led the way. Many investors were unwilling to carry short positions over the weekend in anticipation that the U.S. Senate might pass a spending bill and of the plan to be proposed on Monday by Treasury Secretary Geithner.
From Bloomberg:
Treasuries fell for a third straight week after the government’s announcement of a record $67 billion in note and bond sales overshadowed the biggest monthly decline in payrolls since 1974. Yields on the benchmark 10-year note touched the highest in more than two months as the government set the auctions for next week and concern mounted that debt sales will damp demand.
Just at the moment that stock futures rallied this morning at 10:00 am EST, treasuries plunged. Many traders toggle back and forth between them. Often, if I want more feedback on the status of a particular trade in treasuries, I will quickly glance at what stocks are doing. If stocks show signs of reversal, then I know that shift in market sentiment will also affect my treasury trade.
Senate Majority Leader Harry Reid has indicated that the U.S. Senate will vote on a spending package today intended to stimulate the U.S. economy and which also rewards special interests. If the bill is passed "as is", it will likely be one passed largely on party line votes. Stocks are responding with a solid rally! The Dow had been down more than 100 points, but are now 100 points higher as a result.
Currency momentum of a rising USDJPY has caused stocks to rebound, erasing all losses and moving into positive territory (see the S&P 500 chart above). I have no idea why this would help stocks. It is good news that we have managed to once again bounce off the lows we struck in November. Perhaps there is also some hope that a stimlus package is likely to be passed by Congress soon.
Ouch! The moving average jumped higher also. This is probably going to kill stocks because it is so unexpected. But there is also a glimmer of good news. Productivity remains high. On the other hand, hours worked in non-farm activity continues to fall. It is also troubling to realize that job losses are no longer centered in housing, construction, and financial sectors. We are seeing more and more job losses in all other sectors of the economy, including even technology and pharmaceutical industries.
Despite better-than-expected January sales figures, another announcement this morning from Walmart sent stock index futures south. Walmart announced that it will no longer provide monthly sales forecast guidance, spooking traders in pre-market activity. This is worrisome, given that Walmart apparently sees trouble ahead. As the world's retail discounting goliath, when Walmart sees trouble, it gets the market's attention. Personally, I think this announcement will have only temporary, short-term impact.
While stock index, grain, and treasury futures have been fairly quite in overnight trading, gold has once again shown some strength, after retracing somewhat over the previous few days. Currencies have also demonstrated some modest volatility. Is this the beginning of the next rise for gold?
Bloomberg is reporting the following today:
Ten-year Treasuries rose, snapping a two-day decline, on speculation a government report today will show U.S. job losses are mounting.The bonds climbed in advance of a report that’s expected to show half a million Americans lost their jobs in January, pushing the number of jobless claims to the highest since records began in 1967.
The report “is going to be ugly, so clearly the market is positioning for that, giving us a firmer Treasury market than in the last day or so,” said Olando Green, a fixed-income strategist in London at Calyon, the investment-banking unit of Credit Agricole SA. “Once you get the payrolls out of the way the market will restart focusing on supply, which is a major issue.”
Here is the full Bloomberg story.
10-year treasury futures overnight have been relatively subdued, but the 30-year futures have shown some modest activity.
Bloomberg has an article this morning about a very sober assessment by John Talbott, a former investment banker for Goldman Sachs.
Here are some excerpts:
Talbott is an oracle with a track record: His previous books predicted the collapse of both the housing bubble and the tech-stock binge before it.
Talbott’s latest predictions are sobering. The U.S. is only halfway through the total potential decline in housing prices, he says. Home values will continue to deteriorate for four to five years, he forecasts.
Buy the loonie! Today at least! This was one of the opportunities I uncovered by using my timer alarm to scan frequently for opportunities.
One of the reasons that I prefer trading treasuries above all other futures contracts is that sharp reversals aren't the norm. Obviously, that is not always the case, as this chart shows. This chart pattern has manifested itself just minutes following my last one.
Treasury futures have shown the only significant momentum this morning, reversing some of yesterday's price decline. I see no other futures instrument that shows and significant momentum overnight.
Prices have rebounded strongly in evening trading on stronger economic prospects bouyed by higher stock markets. One interesting aspect of the financial markets is that the grain futures market closes at 1:15 pm CST, but the stock markets don't close until nearly two hours later at 3:00 pm CST. In a case like today, in which the stock market rallies strongly after the close of grain trading, it tends to set up the grain markets for a rally when it reopens later, on the hopes that an economic revival will result in increased demand for grain products. This phenomenon also exists at times to some degree in the mornings, because the grain market is closed from 6:00 am to 9:30 am CST, while stock index futures continue to trade throughout this period, including the stock market open at 8:30 am CST. Strong momentum in stocks often bleeds into the grain markets when they open again at 9:30 am.U.S. soybean, corn and wheat futures rose on Wednesday, as stronger U.S. home sales data buoyed stock markets and firmed crude oil prices.
