This was not a good day.
I pointed out to members that the Dow was much worse than it seemed becasue XOM (up 2.8%) and CVX (up 2.5%) added about 50 points to the Dow, which was pretty flat even with their contributions. Well, we didn’t expect much action ahead of the Fed and we didn’t get it so how can we complain?
In addition to the Fed, which actually doesn’t give us a decision until Wednesday and one has to wonder if this relentless attack on the financial sector that has been led by GS downgrading everything was actually geared up to make it impossible for the Fed to raise rates at this meeting. Don’t forget that GS gets their money at will from the Fed discount window and, even if they don’t borrow from the Fed directly, their ability to do so allows them to play hardball when negotiating the rates they get from others.
Goldman Sachs earns $20Bn in fees from transactions involving Trillions of dollars in cash and every quarter point of Federal Welfare is an extra couple of Billion of profits for GS. In the past week, ahead of the Fed meeting, GS and other analysts have sent the markets into a tailspin by downgrading banks, financial companies, the US auto industry, airlines and even pharmaceutical companies, who are usually "safety stocks" in uncertain times, taking the market back to 52-week lows ahead of a critical Federal Reserve meeting and ahead of the second quarter’s earnings.
Are our analysts being prescient or are they using their last opportunity to knock down the markets before the evidence of the actual earnings reports makes it impossible for them to force another bottom? I predicted at the beginning of the year that we would bottom out ahead of Q2 earnings and the earnings would set us free, but I find it really disturbing to see all this effort put in to making sure we are at rock bottom for the end of Q2.
We have other data this week including Consumer Confidence tomorrow at 10 am and Briefing.com lists the following economic events for the week:
| Date | ET | Release | For | Actual | Briefing.com | Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Jun 24 | 10:00 | Consumer Confidence | Jun | 56.0 | 56.0 | 57.2 | ||
| Jun 25 | 08:30 | Durable Orders | May | 0.3% | 0.0% | -0.5% | ||
| Jun 25 | 10:00 | New Home Sales | May | 520K | 510K | 526K | ||
| Jun 25 | 10:30 | Crude Inventories | 06/21 | NA | NA | -1242K | ||
| Jun 25 | 14:15 | FOMC Policy Statement | ||||||
| Jun 26 | 08:30 | Chain Deflator-Final | Q1 | 2.6% | 2.6% | 2.6% | ||
| Jun 26 | 08:30 | GDP-Final | Q1 | 1.0% | 1.0% | 0.9% | ||
| Jun 26 | 08:30 | Initial Claims | 06/21 | 370K | 375K | 381K | ||
| Jun 26 | 10:00 | Existing Home Sales | May | 5.05M | 4.95M | 4.89M | ||
| Jun 27 | 08:30 | Personal Income | May | 0.4% | 0.4% | 0.2% | ||
| Jun 27 | 08:30 | Personal Spending | May | 0.7% | 0.7% | 0.2% | ||
| Jun 27 | 08:30 | PCE Core Inflation | May | 0.2% | 0.2% | 0.1% |
The GDP is no news and we’re sure not going to save the market with home sales are we? Nope, it’s all about the Fed this week as well as the price of oil, of course. Witnesses told a House subcommittee today "that oil prices could fall sharply if Congress put strict limits on trading in energy futures by investment banks, pension funds and other financial investors."
An energy subcommittee investigating the role of speculation in energy prices heard from a panel of energy-market participants who said crude-oil prices would fall with stricter regulation:
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"Prices would probably drop over a reasonably short period of time back to somewhere closer to the marginal production cost of oil, to $65 to $70…and I think gas prices would reflect that in a relatively short order," said Mike Masters, a hedge-fund manager testifying before a Congressional panel probing speculation in the energy markets. -
Fadel Gheit, managing director and senior oil analyst at Oppenheimer & Co., said prices could come down to a range of $45 to $60 a barrel.
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Edward Krapels, a special adviser at the consultancy Energy Security Analysis Inc., said he would expect the retreat from energy markets to be fairly fast. "I think the amount of speculation is really substantial, [and] I don’t think it would take 30 days after the President signed the bill, it would happen more quickly than that…as soon as Congress passed it, commodity funds would withdraw their positions," he said.
Energy Chairman John Dingell and others at the subcommittee meeting said Congress should consider forcing speculators to put up margin, or collateral, worth 50% of the value of energy futures in which they seek to trade. Today margins requirements for most traders in oil futures are often in single-digit percentages of the value of their commodity holdings – Maybe that’s why Goldman is so desperate to keep their borrowing rates down as there is evidence that speculators have tripled their positions in commodities since 2000, that’s a lot of margin to raise!
My bullish premise on the markets is very dependent on oil prices coming down and, while they remain stubbornly high, I really do think this may be the last harrah as we now have every stop being pulled out by the speculators and their pocket politicians to stop what is inevitably going to happen in Congress.
For example, the CFTC has been testifying that speculators only represent around 30% of the market, but after lawmakers asked the agency to reclassify swaps dealers as speculators, and not commercial hedgers such as airlines, the ratio flipped from 30% speculators to 70% speculators. Were they lying to Congress or just not understanding what a speculator is???
