In this series of articles, we include important or interesting
videoclips with our comments. This is an article that expresses our
personal opinions about comments made on Television and in Print. It is
NOT intended to provide any investment advice of any type whatsoever.
No one should base any investing decisions or conclusions based on
anything written in or inferred from this article. Investing is a
serious matter and all investment decisions should only be taken after a
detailed discussion with your investment advisor and should be subject
to your objectives, suitability requirements and risk tolerances
1. Bernanke is up at bat
This was a fairly benign week. That was illustrated by Friday’s action in the stock market. The Dow was down 150 points during the day. But there was no follow thru. So the indices began their usual slow grind up to close up 3 pts on the Dow, which has now closed up for 5 consecutive weeks.
Some data was positive, some negative which sort of balanced out. The Consumer Confidence came in at 85.1, the highest level since July 2007 print of 90+. Next week’s GDP number is widely expected to be weak. So once again, the most important piece of data, assuming Bernanke remains data dependent, is next Friday’s payroll number.
We have argued for past couple of weeks that tapering is tightening. For simple folks like us, if Fed buying bonds is an act of providing liquidity or easing, then the Fed reducing the size of its purchases is the act of reducing liquidity or tightening monetary conditions.
We may well say so, but what the gurus say?.
- Byron Wien on Tapering is Tightening on Wednesday, July 24 – any amount of reduction of liquidity, it will have the effect of tightening. to go from 85 to 60, that’s sort of like tightening..
- Dennis Gartman on Fed tapering = tightening on Thursday, July 25 – the reduction in the amount of accommodation will be seen as a tightening. but is it actually a tightening? No.
- Greg Ip on Fed tapering – tightening? on Thursday, July 22 – if the Fed ends up buying more bonds next year than the market now expects, that is an easing of policy. if the fed signals it will buy fewer bonds in the coming year by tapering more quickly, that is a tightening.
Frankly, we hope Bernanke says something that jolts the financial markets. It is getting pretty boring except in the specific stocks that reported earnings.
Whatever little action we had this week was due to the gossip about Larry Summers vs. Janet Yellen replacing Bernanke. This was responsible for Wednesday’s ugly action in Treasuries, according to:
- Lawrence McDonald @Convertbond3m – Less #QE at the Wheel? Market continues to price in “less dovish” Larry Summers as the next #Fed Chairman, US 10 Year hit 2.73%
We don’t discount the potential impact of the choice of Mr. Summers, but Wednesday’s action in Bunds & Treasuries was also due to the surprising 50+ PMI numbers from Europe. On the other hand, rates did back off on Friday after the White House announcement that the choice of the next Fed chairman will not be made until the fall.
2. U.S. Equities
Carter Worth, resident technician at CNBC Options Action, spoke about the Russell 2000 on Friday:
- “the truth be told is the Russell has achieved a level now which is in principle suspect. if … connect the highs of 2000 with the highs of 2007, we are now just approaching that level. It is also, of course, annualizing something over 45%. The recent angle of the last month is 130%. This thing is just a ramp job and we would fade it.”
Brian Stutland, another CNBC Options Action contributor, actually initiated the bearish discussion about Russell 2000 and recommended going long September Quarterly 97 puts for $1.15.
Even Lawrence McMillan sounded a cautious note on Friday:
- “$SPX remains in a strong uptrend. However, it has reached overbought levels, in that it is “too far” above its 200-day moving average. The first support level is 1670, and if that is violated, traders should turn cautious.”
- “Market breadth indicators are still on buy signals, but are at a point where another day of strong negative breadth would likely push them over to sell signals.”
- “In summary, the indicators remain bullish, but overbought conditions augur for a correction, likely to be short-lived, but could be more serious if more sell signals develop in the intermediate-term indicators.”
Mark Newton tweeted on Thursday, July 25 afternoon:
- Mark Newton @MarkNewtonCMT1m – MONTHLY ITB vs SPX w/ Demark overlays, both Weekly, Monthly TD Sells confirmed, similar to monthly buys from 2011 pic.twitter.com/u85iPL8OTv
Kudos to Mr. Newton for attaching his counts in a graph. Look it up in full size on his Twitter link above or see the much smaller picture below:
(courtesy of Mark Newton @MarkNewtonCMT1m)
3. Gold – Opinions.
The most interesting action of the week was the breakout in Gold & Silver on Monday, July 22. The S&P reached a new closing high of 1695 on Monday giving support to Gartman’s Own Stocks, Own Gold call below.
Chris Verrone on CNBC Fast Money on Monday, July 22
- 1300 to 1400 is going to be difficult. the most relevant thing is the present down trend. 50 still below 200. where does it break out to the upside? north of 1400? yeah. I would say watch s
ilver. silver has not participated in this recent bounce to the west to the same extent that gold has. historically we’ve found that when silver is lagging on the downside it’s not good for either metal.
Dennis Gartman on CNBC Fast Money on Monday, July 22.
- “what do you do with gold now? Buy more. I thought today was a very impressive day. You walked in; it gapped higher, right off the bat at 1315, never looked back. Very impressive action. I’m not a gold bug. I think of gold as nothing more than another currency but it was a very impressive performance. I thought it was all the more impressive given the fact that crude oil prices fell very sharply this afternoon and gold still went up in the face of that. You have to like it. Gold wants to go higher, probably predicated on a continued expectation that the Fed will continue to expand reserves and so, too, too shall other banks.”
- “Backwardation; It means quite a good deal to me. It’s rare that you see gold — in fact, it’s uncommonly rare to see gold backwardate but it has in the very front months. The gofo as they call it, the gold forward rate has gone to a premium. Very unusual circumstances. It’s hard to find spot, its hard to find cash gold. that backwardation is an unusual circumstance. You don’t sell them in any market and specifically don’t sell them in the gold market.”
- “it’s the first time in a long while I think gold minors can outperform gold. For five years now the gold minors have underperformed badly. Over the course of the last several months it’s interesting to watch the GDX. It’s actually begun to gain relative to gold futures. It’s unusual. This is long overdue. If you are the public, rather than trading gold futures you’re going to be better off trading the gold mining stocks. First time in five years I’ve said that but I think that’s what’s about to happen.”
- “you still think this rally for the s&p 500 is intact as you are entering the thick of earning season? absolutely. it’s a bull market and will continue to be a bull market. even as talk of tapering, the fed is not going to be unaccommodative for a long period of time. I think the economy is showing better signs of strength bit by piece. On balance things are getting better. I think you are going to be surprised how much higher stock prices are going to go even with Gold going up. So it will be interesting; Own Stocks, Own Gold hedging one another.”
Richard Ross on CNBC Talking Numbers on Monday, July 22
- Gold has further upside from here. we are up 12% since June 28th alone. very nice uptrend; we settled into a very nice 10-day trading range bounded by 1300 on the upside. Just recently a breakout above 1300 into a textbook bullish flag. That tells us we are going higher. Still have overhead resistance to contend with when you see 50-day moving average around 1330 and resistance which comes in at prior support around 1350. I like the way Gold is acting here. You could see 1400 even 1500 in the most optimistic scenario. .
Carter Worth on CNBC Options Action on Friday, July 26.
- “we like it long here, we know that gold has plunged from 1,800 down to a low of 1,180. What’s key here is it really got ugly and dropped 15% in about three days. Now we’ve had that ricochet. You will in principle spend a little bit of time stuck here, contending with these people who are now happy to get their money back. they didn’t dump here, but now they’ve got their capital back there wanting to get out. so after sometime, though, you’ve removed this supply, you can then advance further. We think ultimately, second chart, where we’re going is back to the channel that it was in before the really ugly stuff started. so we think 1395, 1400, maybe a little bit more. At that point, off the 1180 low, it’s time to basically call it even, out, just get flat.
Ralph Acampora tweeted on Monday, July 22:
- Ralph Acampora CMT @Ralph_Acampora16m – “Silver rallied above minor resistance and broke its near-term downtrend. The next zone of resistance is in the 22/23 area.”
4. Detroit Bankruptcy & Municipal Bonds
The action in the muni market and conversations with some dealers suggest that there is a virtual exodus from muni funds by individual investors. The constant shouting on financial TV about rates rising is enough to scare all but the most convinced. Add to that the largest municipal bankruptcy. The bankruptcy filing by Detroit is a serious issue indeed especially if it leads to changes in bond covenants.
But is this exodus and the sell off creating opportunities for strong municipal credits? The answer according to David Kotok of Cumberland Advisors is not just yes, but heck yes.
- “When the tax-free AAA bond has a higher yield than the taxable US
government bond, it is not priced according to credit risk or the tax
code; instead, it is priced by a dysfunctional market,” .
And what do smart investors do when they see dysfunctional markets? Bloomberg told us what Kotok is doing:
- “We are
seizing on this bargain provided to us by market dysfunction.”
We are not smart enough to advise or recommend any source to readers. But we do feel readers could worse than signing up for the free market commentary on Is Shrinking Arctic Ice a Bad Thing? This is an article that writers and muckety-mucks at our favorite newspaper, the New York Times, would hate to read. In spite of that and, for some, because of that we urge all to read it.
McClellan has found one pearl of wisdom in the data about Arctic ice levels – specifically in the variable he calls March ice area maximum:
“The ice area maximum that occurs typically in March is inversely correlated to economic activity. … Putting it more simply, more wintertime arctic ice area is a bad thing
for the economy. Less winter ice is good, at least from a GDP
The correlation gets even better when he uses World GDP instead of US GDP, according to the article.
First the economic & market impact:
- “the fact that the March 2013 arctic ice area was greater … than March 2012 implies a slower posting for 2013 U.S. GDP growth“
But the more interesting impact is on the social & political debate:.
- “More global warming means more human suffering, we are told,
resulting from presumably rising sea levels and greater assumed
storminess. But that same global warming seems to mean greater GDP
Then Tom McClellan asks the obvious question:
- “So would the human suffering that would result from an economic slowdown
(lower GDP growth) be perceived as being greater than the potential
human suffering from presumably rising sea levels?”
What is his answer? This smart man simply writes:
- “That’s not something these data can model.”
McClellan may not answer but surely Andrew Ross Sorkin of CNBC-NYTimes can offer some answers and debate this with his pure-CNBC colleague Joe Kernen. That would be fun to watch, wouldn’t it?
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