May 11th, 2012
in Gary's blogging
Market closing Comments:
Let's pretend that today didn't happen. The market opened down, came back up to yesterday's close and tapered off and closed flat. Somehow, this isn't a good sign for those foretelling a bull market in the making. By Monday, actually Sunday, we will have a good idea where the markets are going.
The DOW closed at 12820, down 34.44 or -0.27%, the 500 closed at 1353, down 4.60 or -0.34% and the $RUT closed at 790.06, down 4.69 or -021%. SPY closed at 135.48 down 0.54 or -0.40% and QQQ closed at 64.23 UP 4 cents or +0.06%.
Gold dropped to 1578.67, WTI oil having reached 97 fell to the 95 area, Brent also fell to the high 111's and settled on 112.05 and Dr. Copper, in the news again, declines 1.63% to $3.6305 a pound on Comex something to watch. The ECRI fell from 0.00 to -0.01 signaling what may happen to the economy, recession wise, in 6 months. Follow up:
I have to hand it to the Central Planners. They are good. Really, really good. Of course, they are battling a crippled opponent considering so much of America consists of lobotomized sheeple, but nevertheless to be able to steal so much from many people with such blatant and simplistic methods and not be widely discovered is an act of devious brilliance.
The reason I say this now is because ever since last fall TPTB have changed tactics and totally taken over the markets and with it shoved many people into what is best described as a trance.
The people know something is very wrong.
They know they are getting poorer; that life is getting harder, yet the television and the markets have cloaked a blanket of sedation upon their minds.
Noon Market Comments:
Markets have sea sawed all morning melting up near the opening numbers, then down and then back up to positive territory. The DOW is currently 12880, up 20 with a negative bias, The 500 is at 1360, up 2.70 and the $RUT is at 792 up 0.92.
The markets are trending down on lighter volume. The news out of the Eurozone is quiet mainly because no one can get anything done of any consequence. My leanings for this hour is to be short over the weekend.
EC president Jose Manuel Barroso has said Greece should leave the euro if it can't implement the austerity measures it agreed to land its bailout:
I have a lot of respect for Greek democracy and also the Greek parliament but I also have to respect the other 16 parliaments. If the agreements are not respected it means there are not the conditions to continue with a country that does not respect the agreements.
12:00 PM On the hour: Dow +0.34%. 10-yr +0.15%. Euro +0.02% vs. dollar. Crude -0.29% to $96.8. Gold -0.66% to $1584.95.
Opening Market Comments:
The SP500 opened down at 1348 and recovered to 1355 in short order. The DOW was down to 12755 at the opening and moved back up to 12817. Volume is low to moderate and mostly green at the 'dippers' jump in again. Interesting that just about every dip has been bought.
The feeling around the water cooler is that the JPM multibillion 'mistake' is an isolated instance of supreme stupidity and should not effect the markets. My feeling is that these financial institutions (and banks) have NOT learned much from the financial crisis and we will be seeing more of these types of issues. The French banks in particular are most vulnerable.
“Producer prices fell 0.2% in April from March. Economists were expecting prices to remain unchanged. Excluding the food and energy components, prices were up 0.2%, in line with estimates.”
PPI: -0.2%, a decline, and a miss of expectations of 0.0%, Y/Y +1.9%, Exp. 2.1%, first drop in 4 months.
Core PPI: 0.2%, in line.
April PPI “should allay fears of producer costs being passed through to customers downstream,” says Bloomberg economist Joseph Brusuelas
Supports Fed’s assessment of transitory inflation increase on rising oil, commodity costs at end 2011
Intermediate costs decline points to reduced pressure on profit margins: Brusuelas
Core intermediate PPI, “closely” watched by Fed, increase "benign," notes Bloomberg economist Rich Yamarone
Premarket Comments And Analysis:
Just about everyone knows about JPM yesterday in the after closing remarks and their big loss which took the SP500 futures down 7 points faster than you can say ”what just happened”. With the reporting of the PPI this morning, the SP500 is still down at the 1346 level and is expected to move lower once the markets open.
Asia and Europe markets are both down with the Hang Seng closing down at -1.30% The French CAC 40 is down -0.97% but was down -1.30% earlier. The FTSE is down -0.67% and the German DAX is down -0.59%.
The declining markets were triggered by JPM yesterday as it seems the banks are still playing games.
There are a lot of moving parts in the Dismal tale of Dimon's demise... Iksil' large size in the market left a mark that hedge funds tried to fix - that was his index trading was making the index extremely rich (expensive) relative to intrinsics (fair-value). That is where the media picked up the story and as we detail below leads us to today.
Attempts to hedge his over-hedged positions and/or unwind them impacted the market too much and we suspect created the need for today's admission of guilt.
And so, we find ourselves with - net CDS/CDO notionals remain huge (and implicitly on JPM's shoulders), his very recent lack of selling has left the credit index maybe 20bps rich to where it might trade given its rough correlation with the S&P 500 and this would imply at least $3bn of losses already in addition at fair-value.
Of course, the situation is far worse because 1) any efforts to unwind such a huge position will lead to the market yawning wide and swallowing him in illiquid bid-ask spreads; and 2) the rest of the world knows their position - so why would the hedge funds not push their position.
Note, it is not the instrument that caused this - it is the trader as "you don't hedge risk when you bet on momentum continuing you idiot!"
9:00 AM On the hour: S&P -0.73%. 10-yr +0.21%. Euro -0.09% vs. dollar. Crude -1.43% to $95.69. Gold -0.82% to $1582.35.
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Written by Gary