Obviously, with the Steve Jobs situation, everyone is wondering how to play things. At the time (7:03) I thought the fact that AAPL was only down 3.7%, at $335, seemed fake and ridiculous – but what else is new in this market? Our position was to short pretty much everything as the Nas futures were all the way back to 2,310, which was not even down half a point from Friday’s close and some simple math tells us that AAPL is over 20% of the Nasdaq so a 5% drop in AAPL will take the Nasdaq down 1% while a 20% drop in AAPL will take the Nasdaq down 4% – right back to the 50 DMA at 2,640 and that seems like a reasonable pullback – especially when you consider that 2% of the current 2,755 was a result of Friday’s ridiculous rally.
Surely at least we would expect the loss of Steve Jobs to AT LEAST put the Nasdaq back to Friday’s open at 2,730 (2,300 in the futures) but I’ll be very surprised if we don’t at least test that 50 DMA so that will be our watch line for the week. Oddly enough, we had been discussing Steve Jobs’ health as one of the key unpriced market risks last Thursday, when I said to Members (in response to why I preferred a very defensive AAPL spread to holding the stock):
AAPL/Iflan – As I said to Maya, I like my above AAPL trade better than cash but I do not like AAPL stock better than cash because you can only sell 10% worth of protection and that caps your gains at 10% (and we can do better with cash) and it also doesn’t cover the risk of Steve Jobs catching a cold or just coughing on stage, which could cost you 20% very quickly.
In fact, concerns of AAPL and Jobs’ health were the premise for pressing our QID bets in February (see our $10,000 Virtual Portfolio Review), where I said at the time: "QID/Drum – Well since we were saved from doom on USO I got brave and went for a DD on the QID Feb $10s (now .82) and I think that’s worth the risk into expiration and the following weekend. Same goes for waiting on the…
I haven’t thought the 75%+ rally was particularly irrational over the course of the last 12 months. Surprised by the strength? Absolutely. But irrational, no. As of late, we’ve begun to see signs that the consumer is back, but the equity action implies that the consumer is not only back, but ready to break records. In late 2006 I wrote a letter that said:
“So here we sit with a relatively healthy economy, signs of inflation and record housing prices. Sounds pretty good, right? Not so fast. The markets could certainly move higher if housing doesn’t collapse, but we see very few scenarios in which that can happen. When the housing market slows consumers will spend less and businesses will begin to suffer. The US economy will then fall into a recession and European and Asian countries will quickly follow suit as the world’s greatest consumers wilt under the environment of low liquidity and higher debt….The credit driven housing bubble remains the greatest risk to the equity markets at this time.”
The day before the market bottom in March 2009 I said government intervention would likely generate an equity rally. But I did not come close to predicting that we were on the precipice of a 75% 12 month move. Not even close. On the other hand, I have never thought the move was particularly irrational and didn’t fight the tape through 2009.
I was very constructive on the market heading into 2010 and maintained that stimulus, strong earnings and an accommodative Fed would result in higher stock prices in H1. I point this out not because I am trying to toot my own horn or gloss over my many imperfections (many can be emphasized), but overall I have been able to not only foresee the macro mechanics driving the market, but have also done a fine job translating that into…
Consumer confidence is typically our "first look" at the state of the economy. While most government aggregated data come out with a two-month lag, or more, consumer confidence hits with just a one month lag. Studies have shown that consumer confidence is a good predictor of consumer spending numbers. Basically, people surveyed seem to be good at accurately reading their own economic situation, and those surveyed accurately reflect the broader economy. When consumer confidence drops to such deep unexpected levels--today’s were the worst in 27 years--then it is a flashing red-light about the economy.
There wasn’t anything good about today’s numbers. Every part of the survey was awful. On jobs, the optimistic folks who say jobs are plentiful fell to 3.6 percent from 4.4 percent. The pessimistic people who said jobs are hard to get increased to 47.7 percent from 46.5 percent. The gauge of expectations for the next six-months fell to 63.8, from 77.3 the prior month. The share of people who believe their incomes will increase over the next six months fell to 9.5 from 11 percent. The share of those expecting more jobs fell to 12.4 percent from 15.8 percent.
The message: the economy sucks.
The recovery we were supposed to have.
You’ll read a lot about how the consumer confidence numbers are a lagging indicator. Indeed, they are a lagging indicator when measured against the stock market. The real time data conveyed by the stock market is often a better indicator than any survey or government data. But that doesn’t mean you shouldn’t pay attention to the consumer confidence number, especially since stocks have declined for most of this year.
Lets be clear here. The story-book recovery was dependent on a recovery of the consumer and a decline in the saving rate. If consumers lost some of their apprehension about future income prospects and future employment, they might begin to spend more on both retail goods and to purchase homes again. Anticipating this return of the consumer, businesses would increase capital spending and inventory.
Shown below is a retail proxy, the Retail HLDRs Exchange Traded Fund (RTH). It’s outperformed the S&P500 on a three month basis. Yet Best Buy’s (BBY) warning today, that revenue will be driven by lower-ticket items in the fourth quarter, could mean that the pre-Christmas retail rally shown below is toast.
Note how Best Buy dropped a nasty 7% on just these decent earnings. A lot of holiday cheer is already priced-in.
The hype is that the "recession is over." Has anyone touting this line actually walked around the real world? The next 7 million jobs to be lost are already in the pipeline.
The divergence between the reality easily observed in the real world and the heavily touted hype that "the recession is over because GDP rose 3.5%" is growing. It’s obvious that another 7 million jobs which are currently hanging by threads will be slashed in the next year or two.
Total nonfarm payroll employment declined by 190,000 in October. In the most recent 3 months, job losses have averaged 188,000 per month, compared with losses averaging 357,000 during the prior 3 months. In contrast, losses averaged 645,000 per month from November 2008 to April 2009. Since December 2007, payroll employment has fallen by 7.3 million.
Civilian labor force: 154 million
Employment: 138.3 million
Unemployment: 15.7 million
Sept-Oct. change in employment: -589,000
in unemployment: 558,000
Not in labor force: 82,575,000
It is staggering that 7 million jobs lost out of 145 million (the total prior to the financial meltdown) has created a 10.2% unemployment rate. The numbers here don’t add up--"only" 190,000 jobs were lost in October, but then employment fell by 589,000--huh?--but the point missing is how many jobs are hanging by a thread.
I recently traveled to Los Angeles to be interviewed by my polymath friend and media maven Richard Metzger, creator of the Dangerous Minds website which has rocketed to 50,000 page views a day since he launched it a few months ago. (The topic was of course Survival+; look for the interview in about a week on Dangerous Minds.)
(Richard also manages the L.A. Time’s hot blog Brand X which will have you humming Randy Neuman’s I Love L.A. in short order.)
Has anyone noticed that airports are commercial dead-zones peopled by zombie clerks suffering from terminal boredom?
Richard Parkus of Deutsche Bank has updated his Commercial Real Estate outlook with Q2 data. Check out how much the situation has deteriorated since the end of Q1.
First, here’s where things stood at the end of Q1. The lines on the chart are the percentage of loans that are delinquent, measured by length of delinquency (the black line is the average). Deutsche Bank (bearish) was looking for 3.5% average delinquency by the end of the year.
And here’s where they were at June 30. Deutsche Bank is now looking for 6%-7% delinquency by the end of the year.
Note that these problems have nothing to do with "liquidity." (Remember earlier this year, when Tim Geithner was blaming everything on a "lack of liquidity"?) These loans are going bad because the real estate companies can’t make their interest payments--because the tenants can’t pay their rent.
Richard summarizes the situation:
Loan Performance Deteriorating Precipitously
Speed of deterioration in loan performance is unprecedented, even relative to the early 1990s
Total delinquency rate reached 4.1% in June, 2.2 times its March level and 3.5 times that in December
Delinquency rates are likely to soar higher over next 24+ months on billions of dollars of pro forma loans that never stabilized and resetting partial IO loans
With 2,158 delinquent fixed rate loans ($27.9 billion) special servicers may soon be under pressure
DB CMBS Research projects term losses will reach 4.3-6.3% for the outstanding CMBS universe ($31.3-$46.4 billion), and 8.4-12.1% for the 2007 vintage
Global X, the New York-based ETF sponsor known for its unique lineup of commodities and emerging markets funds, announced six of its ETFs will be reverse split, including three gold mining-related funds.
The $29.4 million Global X Gold Explorers ETF (NYSE: GLDX) will undergo a 1-for-4 reverse split while the $2.78 million Global X Junior Miners ETF (NYSE: JUNR) will see a 1-for-3 reverse split. The Global X Pure Gold Miners ETF (NYSE: ...
For the fourth consecutive week, the worldwide rally continues unabated. Seven of the eight indexes on my watchlist posted strong gains with Japan again topping the list with its 3.63% advance. Hong Kong's Hang Seng was the one index to take a breather. Amazingly enough, that Nikkei surge was three percent smaller than the previous week's 6.67%.
The Shanghai remains the only index on the watch list in bear territory -- the traditional designation for a 20% decline from an interim high. See the table inset (lower right) in the chart below. The index is down over 34% from its interim high of August 2009. At the other end of the inset -- four indexes, the ones for Germany, the UK, and J...
Public health historians discuss thwarted efforts to hold the lead industry accountable for toxic exposure threatening American children.
Science can be a battleground — witness the politics of climate change, the teaching of evolution, the uncharted terrain of genetic modification and stem cell research, among other contentious issues. But when industries release untested chemicals into our environment — putting profits before public health — our children are the first to suffer. Nowhere is this more troubling than in the ongoing story of lead poisoning.
Bill talks with David Rosner and Gerald Markowitz, public health historians who’ve been taking on the chemical industry for years — writing about the hazards of in...
Not a day passes without the financial media denouncing gold as an investment option and hailing the bureaucrats heading the world's monopolist monetary central planning agencies as superheroes. It began prior to gold's recent breakdown, with widely cited bearish reports on gold published by Credit Suisse and Goldman Sachs, among others. Never mind that most of their arguments were easily unmasked as spurious. ...
It seems that every Tuesday in 2013 since January 8 has been positive on the Dow. And this past Tuesday was no exception. Now that sounds like a trend to put money on -- buy the SPDR Dow Jones Industrial Average ETF (DIA) at the close each Monday and close out the position late on Tuesday.
The Dow and S&P 500 both hit new all-time highs once again on Wednesday, while the Nasdaq hit its highest level since November 2000. The “risk on” allocation of new investment capital into cyclicals continues, although Wednesday saw leadership from defensive sectors Consumer Staples, Utilities, and Telecom, along with Financials. Nevertheless, ConvergEx reports that the average correlation of the ten S&P business sectors to the overall index averaged 82% last month. While that is below the 86% averag...
BMY - Bristol-Myers Squibb Co. – Shares in drug maker, Bristol-Myers Squibb Co., are ripping higher today, up 6.5% at $44.94, the highest level in more than a decade, ahead of the release of the American Society of Clinical Oncology (ASCO) 2013 Annual Meeting abstracts tonight. The ASCO Annual Meeting begins on May 31st in Chicago. Options on BMY are far more active than usual today, with overall volume topping 64,000 contracts by 12:25 p.m. ET, versus average daily volume of around 11,400 c...
We are starting to see some very extreme readings on our monthly and weekly index charts since there has been no correction this year. I posted below first the monthly chart of the S&P 500 going back 15 years showing bollinger bands – rarely do we get above the upper one, and never have we been this far above. Then below that I posted (with 4 charts of 4 years each) the weekly data and you can see we are at a rare time we are above the weekly bollinger band as well. This non stop rally is getting very historical.
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Stock market posts another record setting week, but the big news came after Friday’s close.
Courtesy of NASA
The stock market put on another record setting show with the Dow Jones Industrial Average (NYSEARCA:DIA) closing at a record high 15,118 and the S&P 500 (NYSEARCA:SPY) closing at 1633.70, another all time closing high.
For the week, the Dow Jones Industrial Average (NYSEARCA:DIA) gained 1%, the S&P 500 (NYSEARCA:SPY) climbed 1.2%, the Nasdaq Composite (NYSEARCA:...
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Well, well, well....it is good to know that there are others in the scientific arena who believed that YMI Bioscience's data (cough - Gilead) is a better drug than Incyte's Jakafi. Now, the definitive data are still unknown, but there was enough evidence from a Phase 2 trial to take a small risk for a huge reward. So, let's forget about Apple (AAPL), and do nothing but biotechs from now until Congress passes universal health care coverage for prescriptions....and drive the prices down so that research and development is no longer feasible to conduct in the US. Even Seattle Genetics (SGEN) has been on a tear as of late...
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